The Australian Taxation Office (ATO) and the Fair Work Ombudsman (FWO) have announced they are ramping up their focus on sham contracting. CCF NSW encourages our members to consider their contractual relationships with their workers to ensure they are all lawful and appropriate.
Sham contracting occurs when an employer misrepresents an employment relationship as an independent contract. This is often to avoid paying employment entitlements such as superannuation, paid leave and workers compensation. This is a significant issue concerning compliance with workplace relations laws.
ATO Assistant Commissioner Tony Goding said data continues to uncover behaviour in industries including building and construction and road freight, that doesn’t contractually add up. “If you’re treating workers like employees but calling them contractors, it may be illegal. That arrangement may not work out the way you might expect once the ATO and FWO have had a look.”
The FWO Anna Booth said employers should be aware that the FWO has investigations on foot into alleged sham contracting in sectors such as building and construction and road transport. “We won’t hesitate to take enforcement action where we find unlawful activity in any sector.”
An important reminder from Ms Booth is that “Employers must not knowingly say something false or misleading to convince an employee to become a contractor to do the same work, or dismiss an employee to engage them as a contractor to do the same work.”
Under the Fair Work Act, courts can impose penalties against businesses or individuals for sham contracting.
The maximum penalties for each contravention are:
- $19,800 for individuals
- $99,000 for businesses with fewer than 15 employees
- For businesses with 15 or more employees, the greater of $495,000 or three times the underpayment amount.
Businesses found to be sham contracting may also risk other penalties and charges such as:
- PAYG Withholding penalty
- Super Guarantee charge
- Additional Super guarantee penalties
Also note that Taxable Payments Annual Reporting provides the ATO with visibility of payments made to contractors each year. This is a further mechanism to identify sham contracting.
Need Assistance? Please contact CCF NSW on 9009 4000 or ccfnsw@ccfnsw.com