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Sham contracts — are you getting a fair deal?

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By Jeff Megahan

 

Sham contracting occurs when an employer attempts to disguise an employment relationship as an independent contracting relationship for reasons including to avoid responsibility for employee entitlements.

There are serious penalties for breaching the sham contracting provisions under the Fair Work Act 2009 which provide that an employer cannot:

  • misrepresent an employment relationship as an independent contracting arrangement
  • dismiss or threaten to dismiss an employee to engage as an independent contractor
  • make a statement they know is false in order to persuade or influence an employee to become an independent contractor.

It is recommended that all parties entering into a contracting agreement carefully review the terms of their agreement to ensure the relationship is genuine. It is not enough to simply state in an agreement that the worker is an ‘independent contractor’ or for the worker to provide an ABN or an invoice for payment.

In some instances, a worker may commence as a genuine, independent contractor but over time the relationship may develop into an employment relationship. It is important to continually review the relationship to ensure it is still genuine.

Although there is no single test or measure that covers every employer/contractor relationship, there are some common indicators that may assist in determining whether a worker is an employee or contractor. These include:

  • Is the agreement made with a company, partnership or trust (other than a labour hire firm) and are payments made to that company, partnership or trust for the services of the worker?
  • Does the worker have control over the work performed?
  • Does the worker carry out core business tasks?
  • Does the worker wear a uniform?
  • Does the worker supply and maintain their own tools or equipment to carry out the tasks?
  • Is the worker paid per task completed rather than on an hourly basis?
  • Does the worker bear any risk of loss?
  • Is the worker free to work for others companies or delegate tasks?
  • Is taxation deducted?
  • Is the worker responsible for their own workers’ compensation?
  • Does the worker have leave entitlements?
  • Does the worker pay their own superannuation?
  • Does the worker submit invoices on completion of a task?
  • Does the contract describe the worker as a contractor?

The above indicators are only a guide to what courts and statutory bodies may consider in making a determination.

For more information on sham contracts, visit business.gov.au



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