Sham contracting
Increase to maximum penalty amounts
An increase to penalty unit amounts applies from 7 November 2024.
This means the maximum penalty amounts for contraventions of the Fair Work Act have increased.
We’re updating the information on this page.
When an employee is incorrectly told they are a contractor, this can be sham contracting.
Find out more about sham contracting.
On this page:
Understanding sham contracting
Sometimes a business or person may tell or represent to a worker that they are an independent contractor (contractor), when in fact they’re an employee of the business.
This may be a sham contracting arrangement, unless the business can prove that they reasonably believed the employee was a contractor.
It’s illegal to represent to a worker that they’re a contractor when the business doesn’t reasonably believe this.
It’s also illegal to:
- knowingly say something false to convince an employee to become a contractor to do the same work (or mostly the same work), or
- dismiss or threaten to dismiss an employee to engage them as a contractor to do the same work (or mostly the same work).
Sham contracting arrangements are sometimes set up by businesses to avoid paying legal entitlements to employees.
Courts can impose penalties against businesses or individuals for sham contracting. The maximum penalties for each contravention are:
- $18,780 for individuals
- $93,900 for businesses with fewer than 15 employees
- $469,500 for businesses with more than 15 employees.
Example: Sham contracting
Leon owns a large manufacturing company.
Leon has engaged Scott for 12 months to fill in for an employee taking parental leave. Before Scott starts, Leon tells Scott that he’ll be a contractor and that he needs an ABN and to invoice the company to get paid. However, Leon knows that the proposed working arrangements indicate that Scott will be performing work as an employee. This includes that Scott:
- will perform work under Leon’s direction and control
- won’t be financially responsible for making a profit or loss
- will be provided with the necessary tools and equipment to do his job
- won’t be able to delegate or subcontract his work
- will work set hours.
Leon says that Scott can’t be an employee because he’ll only be working for the company for a short time, but Leon knows this isn’t true and that he could employ Scott for a fixed term.
Scott works the same hours and performs the same job as the employee on parental leave. He begins to wonder why the company couldn’t hire him as a fixed-term employee.
Scott goes to our website and reads the information on contractors. He believes he has been incorrectly told he is a contractor when he is actually an employee.
Scott speaks to Leon about his concerns. Leon doesn’t agree and says that Scott is a contractor. Scott considers calling our Infoline to discuss his situation.
Help with sham contracting
We are unable to tell you if you are a contractor or an employee. This is best handled by seeking legal advice. See Legal help for more information.
If you think you are in a sham contracting arrangement, we can help you.
You can call us to speak to an adviser between 8 am and 5:30 pm, Monday to Friday. See Contact us.
