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Addressing sham contracting through education

26 May 2022
Addressing sham contracting through education

The Labour Hire Authority (LHA) has been running a compliance campaign designed to target sham contracting in the labour hire industry. 

Sham contracting is an arrangement where an employer attempts to disguise an employment relationship as an independent contracting arrangement. It is used by some labour hire businesses to unlawfully reduce labour and taxation costs and avoid responsibility for employee entitlements.

In addition to being exploitative to workers, sham contracting provides businesses with an unfair competitive advantage, making it harder for legitimate businesses to compete.

Using education to improve compliance

To date, the LHA has dealt with over forty businesses who were supplying an unusually high proportion of independent contractors for their industry.

Understanding your obligations is an easy way to ensure you are compliant. We gave educational material to these providers, and those who believed they may have misclassified their workers were given an opportunity to correct any issues.

This approach has proved successful, and businesses are taking up the opportunity to convert workers to employees, with the LHA providing assistance to ensure that they comply with their legal obligations moving forward. 

In a recent example, a licence holder in the Transport, Postal and Warehousing industry reviewed the guidance materials the LHA provided and developed a better understanding of the differences between employees and independent contractors. As a result, they converted 21 independent contractors to employees. The LHA commends employers for taking this step to ensure their workers are receiving their correct wages and entitlements.

The campaign will continue throughout the year. Next month, we will provide a further update to explain responses to providers who fail to voluntarily comply with their obligations to avoid sham contracting arrangements.

For more information about the differences between employees and independent contractors, visit the Fair Work Ombudsman’s website.