Macrossans Lawyers Brisbane law firm

A contract is seen as a ‘sham’ when an employer seeks to cloak a work relationship to falsely appear as an independent contracting arrangement in order to avoid responsibility for legal entitlements such as PAYG tax, payroll tax, superannuation and workers compensation.

This may mean the contractor has set working hours and very little independence, but supplied their own tools or organises their own tax.

If a court finds that a contracting arrangement is a sham, both the worker and the employer may face costs.

The employer has the heaviest burden,  because they risk having to ‘double pay’ statutory entitlements and remit entitlements from the date of first employing the worker. They also risk fines and penalties up to $33,000, and in the case of workers compensation,  payment for a work injury against which the employer would otherwise be insured.

The employee may also face a significant tax liability and have to repay deductions they claimed as a self-employed worker.  Whether they can seek compensation from their employer will depend on the circumstances of the case.

An employer may avoid a penalty if it can show it genuinely did not know and was not reckless about the true nature of its relationship with the worker. For example, a business that has relied on independent legal advice to engage a contractor should escape liability if the advice turns out to be wrong.