Sham Contracting: When “Being Your Own Boss” Is Really Just a Scam
Many workers in Australia are told they’re “independent contractors” when in reality they are treated like employees. This practice, known as sham contracting, is unlawful under the Fair Work Act 2009 (Cth). It allows businesses to dodge responsibilities like paying leave, superannuation, or minimum wages. But if you’re caught in one of these arrangements, you have strong legal protections.
Sham contracting occurs when an employer deliberately or recklessly calls a worker a contractor even though the working relationship has all the features of employment. For example:
You’re told to get an ABN but still work fixed hours set by the business.
You’re paid by the hour rather than by completing a project.
You can’t send someone else to do your work, even though contractors normally can.
You wear the company’s uniform, use their equipment, and are integrated into their staff roster.
If you tick most of these boxes, you’re probably not a genuine contractor; you’re an employee being denied your legal entitlements. By disguising you as a contractor, businesses avoid paying annual leave, sick leave, redundancy pay, superannuation, and other obligations. It also shifts risk onto you, leaving you responsible for tax and insurance.
The Fair Work Act makes it unlawful for an employer to:
Misrepresent employment as a contract (saying you’re a contractor when you’re really an employee).
Pressure you into signing a contract that wrongly labels you as self-employed.
Dismiss you to re-engage you as a contractor doing the same work.
If this happens, you may have rights to recover unpaid wages and entitlements, and in some cases, you can challenge your dismissal as unlawful.
The Fair Work Commission and courts take sham contracting seriously. Employers can face significant penalties if they misclassify workers. In recent years, claims have resulted in heavy fines and back-pay orders. Many people caught in sham contracts believe they can’t challenge their dismissal or underpayments because they “agreed” to contractor status. That’s not true. The law looks at the reality of the relationship, not just the paperwork. If the way you work looks like employment, the protections of the Fair Work Act likely apply.
