$313,500 fine for sham contracting! It pays to minimise your risks arising from contracting arrangements

Beware, the ATO is aggressively auditing businesses for sham Contracting Arrangements and for unpaid superannuation under the ‘super for contractors’ laws.

Many businesses are aware that there are serious risks for sham contracting. They are also aware that they are not immune from sham contracting risks even if their contractors:

  • Have an ABN
  • Issue invoices for their services
  • Have signed a ‘contactor agreement’.

However, many businesses are not aware of the extent of the risk. In The Director of the Fair Work Building Industry Inspectorate v Linkhill Pty Ltd (No.9) [2014] FCCA 11, a combined penalty of $313,500 was imposed on the “employer” for sham contracts involving 10 tradespeople and labourers engaged to renovate and fit out properties over three years.

The court found that, regardless of a mutual agreement to pay each of the workers a hourly rate, the workers were deprived of minimum entitlements under applicable Awards and legislation.

What can your business do to minimise risk? 

You can reduce the risk by actions such as:

  1. Engaging contractors that are companies rather than contractors that are individuals
  2. Have a properly prepared Contractors Agreement that recognises rights and obligations of the Contractor such as:
    1. Must rectify defects in workmanship
    2. Must have own Employee Relations Plan, and own Safety Management Plan
    3. Can substitute which personnel will perform the services
  3. Ensuring the work arrangements are structured so that the contractor has control over how the work is done.

Measures like that will significantly improve your legal position when your business is audited.

This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

For further information please contact the author Ian Heathwood, Partner – Building & Construction, or any member of our Building & Construction team.

The Author

Ian Heathwood