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Don`t get caught in a sham (Employees vs Contractors) ! By Barry van Heerden – Partner


There appears to be a lot of confusion out there in the market place relating to contractors or employees.  We receive on a regular basis instructions from business owners to prepare a Contractors Agreement when in fact the relationship between the parties is clearly an employer/employee relationship.

If you have a Contractors Agreement in place, whilst the relationship is actually an employer/employee relationship, it is called “sham contracting”.  The Fair Works Ombudsman has the power to investigate sham contracts and may even prosecute businesses that are engaged in sham contracting.  Businesses may face fines up to $33,000.00 per sham contract.  In addition to the fine, businesses will then usually have to make back payments in respect of employee entitlements to the employee.

The problem usually arises when there is a fallout between the business owner and the person working for him.  If there is a Contractors Agreement in place the worker may allege that he is actually an employee and may then request the Fair Work Ombudsman to investigate the relationship between the parties.

There are a number of factors to consider in determining whether someone is a contractor or employee.  The fact that a “Contractors Agreement” is in place between the parties that confirms the worker is a contractor will not be conclusive of the relationship between the parties.  The Fair Work Ombudsman will not only look at the agreement between the parties but will consider the relationship that exists between the parties.

Some of the factors that will be considered are as follows:

  • What control does the business owner have over the worker?
  • How is the worker paid?
  • Who provides tools and equipment?
  • Who determines work hours?
  • Who bears the risk in respect of the work?
  • Is the worker conducting its own business or promoting the business owner’s business?

(Please note this is not an exhaustive list)

If you have any doubt whether the people working for you are employees or contractors we strongly recommend you contact us to discuss the relationship and to ensure that you comply with the guidelines in relation to employees and contractors.

Please do not hesitate to contact our commercial department by calling 07 5536 9777 or email  or complete an online enquiry form.

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The contents of this article are considered accurate as at the date of publication. The information contained in this article does not constitute legal advice and is of a general nature only. Readers should seek legal advice about their specific circumstances. 

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