Dooley Blog

A recent investigation conducted by the office of the Fair Work Ombudsman has revealed that many employers have been misclassifying employees and engaging in sham contracts.

A majority of the errors found were that employers were engaging workers as contractors when they should have been classified as employees. Errors like this can result in a breach of workplace laws particularly of the National Employment Standards, terms of a Modern Award or an Enterprise Agreement.

From the investigation it was clear that Employers were acting on incorrect advice sometimes from their accountants and the Employer had given little thought to the law. The result left these employers exposed to fines from the Fair Work Ombudsman as well as back–payments of entitlements to be made to these employees who were not contractors.

The investigation of 91 business revealed that 23 per cent had misclassified employees as contractors. Employers should really think about the “contractors” they engage and assess if they are in fact contractors and what makes a true contractor. Ask yourself a few questions such as:

1. Does the person only work for my business?
2. Do I require the person to where a uniform?
3. Do I supply the person with all of the equipment they need to get the job done?
4. Is the person covered by my insurance policies?
5. Is the person required work hours that are determined by me?
6. Is the person required to take breaks as requested by me?
7. Do I have ultimate control of how, when and where they work?

If you answered yes to most of the questions above then you could be engaging an employee and not a contractor and could be operating a “sham contract”. You should regularly review the nature of the relationship and assess if it is an employment relationship which requires an update of your agreement with the individual and review of the pay and conditions provided to the person.

We suggest that you contact us prior to engaging workers if you are unsure how they should be classified so as to avoid contravening any workplace laws.

Further information of sham contracts can be found here.

If you need assistance with an employment law matter, please contact us.

 

Entering into employment generally involves the signing of a binding contract between an employer and employee. The contract sets out various terms and policies regarding the rights, obligations and entitlements of each contracting party for the life of the contract.

The nature of a contract differs depending on the particular situation. For example in the case of employment contracts, different types of employees can each have their own unique contracts tailored to their individual circumstances. This may be dependent on, amongst other things, their mode of employment (whether full time, part time, casual and so on), level of experience and so forth.

What is a Sham Contract?

A sham contract is a contract made by an employer which misrepresents or disguises an employment relationship as an independent contracting arrangement. Basically, the employer makes it appear that ‘employees’ are ‘independent contractors’ when in fact they are not.

What is the Difference between an ‘Employee’ and ‘Independent Contractor’?

There are a host of differences between an employee and an independent contractor, which includes varying methods and approaches to the work, the ability to delegate and control how work is done, application of different tax laws, financial risk, work flexibility and many more.

Why do Employers engage in Sham Contracting?

Employers who deliberately create sham contracts for their employees do so predominantly so to avoid having to provide the correct entitlements owed to employees. These include the proper rates of pay, leave entitlements and superannuation. This means that employees under such contracts are being denied the fundamental rights and entitlements that a normal employee would enjoy in a conventional employment relationship.

What does the Law say on this?

Sham contracting is without doubt deceptive, unfair and against the law. Under the Fair Work Act 2009 an employer must not:

1. force an employee to become an independent contractor;
2. dismiss or threaten to dismiss an employee if he/she refuses to become an independent contractor; and
3. misrepresent an employment relationship as an independent contracting relationship.

What to do?

Whether you are an employee or an employer or principal contractor or independent contractor we are able to assist you with the terms of engagement. We are able to prepare or review contracts in order to ensure that they meet and protect your business or individual interests and are in accordance with the law.

Do you need advice on a contract? Make an enquiry here.