Sham Contracting Penalties Fair Work

Sham Contracting Penalties: What You Need to Know About Fair Work

Sham contracting occurs when an employer misclassifies an employee as an independent contractor. This practice is illegal, unethical, and can lead to serious financial and legal consequences. In Australia, the Fair Work Ombudsman is responsible for ensuring that employers comply with sham contracting laws. In this article, we will explore the penalties for sham contracting, and what you need to know to avoid them.

Penalties for Sham Contracting

Sham contracting is a serious offence, and employers who engage in this practice can face severe penalties. The Fair Work Ombudsman has the power to investigate suspected cases of sham contracting, and can issue penalties including fines and court action.


Employers found guilty of sham contracting can be fined up to $66,600 per contravention for companies and $13,320 per contravention for individuals. These fines represent a significant financial burden for small businesses, which may struggle to pay them.

Court Action

In addition to fines, employers can also face court action if they are found guilty of sham contracting. This can result in injunctions, which prevent the employer from engaging in the illegal practice, and can also result in compensation orders, which require the employer to pay employees for any losses incurred as a result of the sham contracting.

How to Avoid Sham Contracting Penalties

To avoid the penalties associated with sham contracting, employers should understand the difference between employees and independent contractors. An employee is entitled to certain rights and entitlements, including the minimum wage, leave entitlements, and superannuation contributions. An independent contractor is responsible for managing their own tax affairs, and is not entitled to these same benefits.

To avoid misclassifying employees as independent contractors, employers should consider the following:

– The level of control the employer has over the work performed by the worker

– Whether the worker is required to wear a uniform or use equipment provided by the employer

– The amount of payment the worker receives, and whether tax is deducted from this payment

– Whether the worker is entitled to leave or other entitlements

By understanding these factors, employers can ensure that they are not engaging in sham contracting. When in doubt, it is best to seek legal advice to ensure compliance with the law.


In conclusion, sham contracting is a serious offence that can lead to significant penalties for employers. To avoid these penalties, employers should understand the difference between employees and independent contractors, and ensure that they are not misclassifying their workers. By doing so, employers can avoid the legal and financial consequences of sham contracting, and ensure compliance with the law.

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