Announced in the federal budget, the government will provide $9.2 million over four years from 2019–20 to establish a dedicated sham contracting crackdown unit within the Fair Work Ombudsman to address sham contracting behaviour.
A sham contract is when an employer deliberately disguises an employment relationship as an independent contracting arrangement, instead of engaging the worker as an employee.
This is usually done to avoid paying employee entitlements such as superannuation, workers’ compensation, leave and certain taxes as well as having to provide work cover.
It is important for business owners to understand the difference between an independent contractor and employee. The distinction is not an easy one to determine and takes many factors into consideration.
Having a registered business name, Australian Business Number and submitting an invoice for work does not necessarily make someone a contractor.
A company must look at many factors:
- can the contractor delegate work?
- how are they paid i.e. per project or an hourly rate?
- do they provide their own tools or other assets (a computer is not a tool)?
- do they take commercial risks for the work (i.e. are they liable to correct defective work)?
- do they have control over the work and are they independent?
With a bit of planning, employee/contractor status is manageable. To ensure you are covered we suggest that you review the classification of your workers and their resulting entitlements and seek advice if you are unclear on any of the above matters.