How to avoid sham business contracts

The Fair Work Ombudsman is cracking down on sham contracting agreements to ensure employers are getting the benefits they deserve.

As part of a new education campaign, the Ombudsman is investigating sham contracts. This is when an employment relationship between a worker and employer is misrepresented as an independent contracting arrangement.

“The concern is that some businesses may be engaging in sham contracting to falsely lower labour costs and to avoid paying annual leave, holiday pay, superannuation and pay as you go (PAYG) withholdings. This means that they are incorrectly classifying their employees as contractors,” EI Legal practice manager Patricia Ryan said.

The EI Legal team have outlined the following four tips to avoid sham arrangements.

1. Review all employment arrangements: Employers and human resource managers should check any employment arrangements with all independent contractors to make sure it is a genuine agreement.

2. Get educated on the law: Employers need to be aware of the Independent Contractors Act, the Fair Work Act and the common law.

3. Review case studies to realise the extent of the issue: Employers should make themselves aware of scenarios where businesses have been caught out to understand the extremities the issue can cause. The Ombudsman has created a tool to assist in understanding whether an independent contractor is genuine.

4. Seek professional advice: If you are unsure of any employment arrangement in your business seek professional help immediately.

With the Ombudsman providing serious penalties against offenders, employers and employees are being urged to make sure they are represented correctly.

“Sham contracting is a serious offence and can expose a business owner and a company to up $33,000 in fines. Employers must seek professional advice if unsure of any employment arrangement,” Ryan added.

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