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Sham contracting

Last updated March 2024

This chapter explains what sham contracting is, how to avoid it, and the penalties you face for engaging in it.

What is sham contracting?

Definition: Sham Contracting

Sham contracting occurs when an employment relationship is characterised as an independent contracting arrangement.

Sham contracting means the employee cannot access rights and entitlements provided under the legislation for employees, including:

  • guaranteed minimum standards;
  • minimum or award wages;
  • paid leave;
  • reasonable limits on working hours; and
  • protection from unfair dismissal.

Sham contracting is used by organisations to avoid paying PAYG and payroll tax, workers’ compensation premiums and superannuation contributions.

Caution: Sham contracting contributes to the black economy. Through reduced labour costs, it gives dishonest employers an unfair commercial advantage over both law-abiding employers and those engaged in genuine contracting arrangements.

Who is a contractor?

Definition: Contractor

A contractor is a person who conducts their own trade or business by providing services under terms set our in a contract.