Another contractor prosecuted by Fair Work for “sham contracting”

 

…How to avoid being the next explained

McKays Solicitors released their November 2014 Law Talk about Sham Contracting – Sham Contracting

According to McKays the how to avoid Sham Contracting are:

Rule 1. Don’t try to convert existing employees into contractors who will keep working just for you as before.

Rule 2. Don’t be conned by people who tell you they have a great system you can use to turn your employees into contractors without being caught for sham contracting. There is at least one organization promoting such a scheme which says it has been approved by the High Court. It is true that the organization was in a High Court case about their scheme‚Äö√Ѭ∂.but they lost!

Rule 3. Take some time to learn the difference between a real contractor and an employee. Here is an extract from the website of the Fair Work Commission which is an excellent place to start:-

A. There are a number of factors which may contribute to determining the difference between an employee and an independent contractor. However, it is important to note that no single indicator can determine if a person is a contractor or an employee. Each determination is based on the individual merits of the work arrangement in place. Courts always look at the totality of the relationship between the parties when determining the status of a person’s employment.

B. There are some common indicators that may contribute to determining whether a person is an employee or independent contractor:

Employee	Contractor
Characteristics of an employee include the following.	Characteristics of a contractor include the following.
Ability to sub-contract/delegate: the worker cannot sub-contract/delegate the work – they cannot pay someone else to do the work.	Ability to sub-contract/delegate: the worker is free to sub-contract/delegate the work – they can pay someone else to do the work.
Basis of payment: the worker is paid	Basis of payment: the worker is paid for a result achieved based on the quote they provided.
o for the time worked
o a price per item or activity
o a commission.
Equipment, tools and other assets:	Equipment, tools and other assets:
o your business provides all or most of the equipment, tools and other assets required to complete the work, or	o the worker provides all or most of the equipment, tools and other assets required to complete the work
o the worker provides all or most of the equipment, tools and other assets required to complete the work, but your business provides them with an allowance or reimburses them for the cost of the equipment, tools and other assets.	o the worker does not receive an allowance or reimbursement for the cost of this equipment, tools and other assets.
Commercial risks: the worker takes no commercial risks. Your business is legally responsible for the work performed by the worker and liable for the cost of rectifying any defect in the work.	Commercial risks: the worker takes commercial risks, with the worker being legally responsible for their work and liable for the cost of rectifying any defect in their work.
Control over the work: your business has the right to direct the way in which the worker performs their work.	Control over the work: the worker has freedom in the way the work is done subject to the specific terms in any contract or agreement.
Independence: the worker is not operating independently from your business. They work within and are considered part of your business.	Independence: the worker is operating their own business independently from your business. The worker performs services as specified in their contract or agreement and is free to accept or refuse additional work

 

Rule 4. You should reduce the risks of you being caught for sham contracting by making sure you have proper contracts prepared by a lawyer with all your workers, whether they are employees or contractors.

Rule 5. If you are in concerns that what you are doing might be exposing you to risk of prosecution or need help with contracts for your workers, don’t ignore the issue but call the Employment law and Industrial Relations Team at McKays for help.

Gold Coast office Scott McSwan P (07) 5553 8403 E smcswan@mckayslaw.com