Sham contracting

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Even if your employer calls you an independent contractor, you might be an employee in a ‘sham contract’. Sham contracts are unlawful and there are things you can do to fix them.

What is sham contracting?

If you think you are an employee, but the person you work for is calling you an independent contractor, you might be in something called a ‘sham contract’.

Sometimes employers will do this to try and get out of paying tax, or other things like superannuation. If you are employed under a sham contract you might be underpaid, or be missing out on things like leave and super.

Sham contracting is unlawful. An employer cannot:

• Tell an employee they are an independent contractor if they are not, unless they ‘reasonably believed’ that they were an independent contractor
• Say something false to convince an employee to do the same work for the employer but as an independent contractor
• Dismiss or threaten to dismiss an employee and rehire them as an independent contractor to do the same work.

How do I know if I’m an independent contractor or an employee?

New laws began on 26 August 2024 that changed how the law defines employers and employees. Now, to figure out if someone is a contractor or an employee, we have to look closely at “the real substance, practical reality, and true nature of the working relationship.” This just means that even if a contract or a boss says someone is an independent contractor, it’s not just the label that matters. We need to look at how the person actually does their work. For example, if they work under the direction of a boss, wear a specific uniform, have set hours, or use the company’s tools, they might really be an employee, even if they’re called a contractor. The new rules are there to make sure people are correctly identified and get the right protections.

For more on these new laws, see Independent contractor changes and Sham contracting.

If you need help working out if you’re an independent contractor or employee, contact us here for free legal advice.

What can I do about sham contracts?

If you think you might be in a sham contracting arrangement, talk directly with your employer first to try and resolve the issue. The Fair Work Ombudsman has a helpful guide on how to do this: How to check if you’re an employee or a contractor.

If you can’t reach an agreement, or you’re not sure how to talk to them, you can contact us for free and confidential legal advice here.

Where can I get further help?

For further information and advice about sham contracts and independent contractors, including your rights, entitlements and obligations, visit the Fair Work Ombudsman website or call the Fair Work Infoline on 13 13 94 (8.00am – 5.30 pm, Monday to Friday).

If you are under 25 and need assistance, or if you have a question that hasn't been answered here, please contact us here for free legal advice.