What Is Sham Contracting Australia

Sham Contracting in Australia: What It Is and How to Avoid It

Sham contracting refers to a situation where an employer misrepresents an employment relationship as an independent contractor arrangement. This practice is illegal in Australia and can result in serious penalties for both businesses and individuals involved.

In an attempt to cut costs and reduce their legal obligations, some employers may try to engage workers as independent contractors instead of employees. This means that they don`t have to pay for entitlements such as sick leave, superannuation, or workers` compensation insurance. However, this can also leave workers without the protections and benefits that come with being an employee.

The Fair Work Act of 2009 prohibits sham contracting and provides penalties for those who engage in it. A business or individual who is found to have engaged in sham contracting can face penalties of up to $66,600 for a corporation and $13,320 for an individual per contravention.

To avoid engaging in sham contracting, employers should ensure that they have a clear understanding of the legal differences between employees and independent contractors. An employee is defined as someone who works in the business and is paid a wage, while an independent contractor is a person who runs their own business and provides services to other businesses.

Factors that may indicate that a worker is an employee rather than an independent contractor include:

– The level of control the employer has over the worker`s work and how it is performed.

– Whether the worker is paid on an hourly or project basis, or whether they receive a regular wage.

– Whether the worker is entitled to benefits such as sick leave, annual leave, or superannuation.

– Whether the worker provides their own tools and equipment or whether they are provided by the employer.

Employers should also ensure that their contracts and agreements with workers clearly define the type of relationship they have. Contracts should clearly outline the duties and responsibilities of both parties, as well as any entitlements or benefits that the worker is entitled to.

If you are an employee who believes that you may be the victim of sham contracting, you should seek legal advice. You may be entitled to compensation for any entitlements that you have been denied.

In conclusion, sham contracting is illegal in Australia and can result in serious penalties for businesses and individuals involved. Employers should ensure that they have a clear understanding of the legal differences between employees and independent contractors and take steps to avoid engaging in sham contracting. By doing so, they can protect themselves and their workers from the potential legal and financial consequences of this illegal practice.