Pay and Conditions

Independent contractors – the Risk of Sham Contracting

The distinction between an employment relationship and that of independent contractor is often vexed. However, the failure to properly characterize the relationship may lead to significant adverse consequences, including prosecution under the Fair Work Act 2009 (Cth) for sham contracting. In this article we focus on the risks associated with prosecution for sham contracting. However, it should be noted that in addition, employers who improperly classify employees as independent contractors may also be liable for underpayment of wages claims, leave claims, payroll tax and other ATO liabilities, superannuation payments; and civil penalties. Not to mention that misclassified employees will also have all the rights of employment including to unfair dismissal remedies, redundancy entitlements and the like.

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