ATO, FWO won't hesitate to take 'enforcement action' against employers engaging in sham contracting
Regulators across Australia are intensifying their crackdown on sham contracting amid concerning patterns of behaviours across several industries.
The Australian Taxation Office (ATO) and the Fair Work Ombudsman (FWO) have announced that they are joining forces to shine a spotlight on the unlawful practice.
"Some businesses seem to think they can dodge their employee obligations, like paying super and other entitlements, simply by saying their employees are independent contractors," ATO Assistant Commissioner Tony Goding said.
"This doesn't pass the pub test; it's also illegal and we're shining a light on those trying to hide in the shadows."
Sham contracting refers to the illegal practice of employers misrepresenting to workers that their employment relationship is an independent contracting arrangement to avoid paying entitlements, such as super, leave, and compensation.
Fair Work Ombudsman Anna Booth added that it is also the unlawful act of misdirecting employees to become contractors who do the same work.
It also involves dismissing an employee to engage them as a contractor to do the same work.
"We won't hesitate to take enforcement action where we find unlawful activity in any sector," Booth said in a statement.
"We are pleased to be joining forces with the ATO to shine a spotlight on this unlawful practice that leaves workers worse off and can land employers in court, exposed to significant penalties."
'Concerning' behaviour in industries
The crackdown comes as community insights and intelligence reveal "concerning patterns of behaviour" across several industries.
According to the FWO, they have investigations on foot into alleged sham contracting in sectors such as building and construction, as well as road transport.
The ATO added that the taxable payments annual report (TPAR) gives the agency visibility of payments made to contractors each year.
It noted that the "many businesses" in the road freight industry are failing to comply with TPAR obligations, with a spike in non-compliance of contractor payment reporting over the past few years.
"The level of visibility we have of payments made to contractors in these industries makes it much harder for those trying to avoid their obligations," Goding said.
"Businesses that think they can get away with dressing employees up as contractors should know that our extensive data-matching and community tip-offs are shining a bright spotlight their way."
Individuals found to have engaged in sham contracting may face fines of up to $19,800.
For businesses with fewer than 15 employees, penalties can rise to $99,000, and for those with more than 15 employees, they can exceed $495,000 or reach three times the underpayment amount.
"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," Goding said.
