Employers could be guilty of ‘Sham Contracting’ and not know it. Do you employ a sub-contractor under an ABN?


There seem to be a number of people working in the building industry being paid under an ABN. This isn’t an issue if they genuinely run their own business, if they have a range of people that pay them, and if they are the one who chooses what to do, when to do it, and get paid once the job is completed.

Where it gets murky for the industry is if they are working for only 1 or 2 people/ or businesses. If they are paid not for the work they complete, but for time, and if they do not choose the jobs, but are sent to them by someone else. If the sub-contractors are unlicensed, it makes it harder again to justify that they are being employed as an independent contractor – and puts the worker at risk of fines up to $20,000 for working unlicensed.

The concept of ‘Sham Contracting’ is probably easier to understand in the cleaning industry. Paying someone as a contractor means employers can save money by not paying other entitlements – such as annual leave & superannuation. For example, a cleaner is paid to do a particular job that his or her employer has arranged. They are paid for their time, told where to go, when to go there and cant themselves arrange for someone else to do the work for them. Fairwork & the ATO have investigated incidents like this, and employers have ended up being fined, and having to pay their contractors the entitlements owed.

The building industry is a bit different to the cleaning example.  Most sub-contractors are paid above the minimum wage. Their hourly rate takes into consideration the lack of entitlements. Fair Work Building & Construction (FWBC) released research this year indicating that approx 50,000 industry workers are likely to be classified as employees instead of subbies. Still, there is a risk. What makes this an even greater risk, is where someone is working as a ‘subbie’ and does not have their own contractors licence, but thats another story for another post!

To find out more about ‘Sham Contracting’ visit the links below, to take a quiz to see where you stand, visit http://www.fairwork.gov.au/employment/independent-contractors/contractor-or-employee/independent-contracting-quiz/pages/default.aspx

http://fwbc.gov.au/know-your-rights-sham-contracting

http://www.aspectlegal.com.au/is-your-independent-contracting-a-sham/

http://www.business.gov.au/BusinessTopics/Independentcontractors/Pages/Unfaircontractsandshamcontracts.aspx

http://www.fairwork.gov.au/employment/independent-contractors/contractor-or-employee/pages/employers-and-sham-contracting.aspx

http://www.fairwork.gov.au/resources/fact-sheets/workplace-rights/pages/independent-contractors-and-emplyees-fact-sheet.aspx

http://www.fwbc.gov.au/sham-contracting