Sham contracting is the Australian term for disguising employment as a contracting arrangement. The Fair Work Act specifically prohibits it, which puts it on a different footing from jurisdictions where misclassification is addressed only through tax and entitlement recovery.
What is prohibited
- Telling a worker they are an independent contractor when they are in fact an employee
- Dismissing or threatening to dismiss an employee in order to re-engage them as a contractor
- Making a knowingly false statement to persuade an employee to become a contractor
How the line is drawn
Australian courts assess the totality of the relationship, and recent High Court decisions placed greater weight on the terms of a comprehensive written contract than earlier authority did. Legislative change has since reintroduced a focus on the real substance and practical reality of the relationship. The position has moved more than once, which is a reason to treat confident assertions about classification with care.
Why it matters when hiring internationally
Engaging Australian workers as contractors because it is administratively simpler carries a specific statutory risk here, over and above the back-pay and superannuation exposure. Penalties apply to the engaging entity, and the defence that the employer was unaware is limited. Where a role has the characteristics of employment, employing the person, whether directly or through an Employer of Record, is the position that holds.