A problem that emerges in workplaces is the masking of a worker as an independent contractor rather than as an employee. Employers do this in order to reduce the amount of rights and liabilities they owe to a worker. These arrangements are known as sham contracts and are outlawed under the Fair Work Act 2009 (CTH). If an employer is found to have made a sham contracting arrangement, they can be fined up to $54,000.00 per violation of the Fair Work Act.
It is important to determine if a worker is an employee or an independent contractor, and there can be situations where the lines are blurred. The most common factors that the court will look at are:
– Degree of control: an independent contractor will have more control over their work, than an employee, whose responsibilities are determined by their employer.
– Hours of work: an employee will have fixed hours per week, as set out in their employment contract. An independent contractor will decide the hours they will work, based on the task they are contracted to do.
– Risk: the employer takes on the financial risk of the employee. Independent contractors have their own insurance policies for work and accident cover. They are also responsible for any profits or loss they make.
– Superannuation: an employer will pay an employee’s superannuation contributions. Usually an independent contractor will have to pay their own superannuation, but if a contractor earns over a certain amount each month and meets other criteria, they may also be entitled to superannuation even though they are not an employee.
– Equipment: an employee will use the equipment that their employer provides them with, whereas an independent contractor tends to use their own.
While these factors are not determinative on their own, they show an indication of how a court will determine the employment status of a worker. It is important to seek advice from Fair Work Australia or a solicitor to see if you suspect you are been categorised as an independent contractor instead of an employee. It can have serious consequences, with the loss of superannuation payments, lower wages, and reduced job security.
If you feel that you are subjected to a sham-contract we suggest you get legal advice to identify if you are affected and to address how to go about ensuring your workplace rights are protected.