2019-20 Federal Budget

Key points

The Government has announced that it will establish a sham contracting unit — within the Fair Work Ombudsman — to address sham contracting behaviour engaged in by some employers.

The new unit will focus on employers who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid statutory obligations and employment entitlements.

Background

In its final report to Government, the Black Economy Taskforce (the Taskforce) identified sham contracting as a practice that ‘unambiguously’ contributes to the Black Economy, and an area of significant concern which required an urgent and targeted response.

Definition

‘Sham contracting’ occurs when a standard employment relationship is wrongly presented as an independent contracting arrangement. This can be employer initiated, where the motivation is to avoid having to pay award wages, PAYG withholding, payroll taxes and superannuation contributions.

One of the Taskforce’s recommendations to Government was that it ensure adequate resourcing of the Fair Work Ombudsman (FWO), after having identified that the number of FWO inspectors fell ‘far short’ of what was required to ensure that workers were paid the appropriate wages and other entitlements such as superannuation.

Announcement

As part of the 2019–20 Federal Budget, the Government announced that it will establish a dedicated sham contracting unit within the FWO to address sham contracting behaviour engaged in by some employers.

The sham contracting unit will focus particularly on those employers who knowingly or recklessly misrepresent employment relationships as independent contracts to avoid statutory obligations and employment entitlements.

It is intended that the unit will more effectively tackle sham contracting by increasing education, compliance and enforcement activities, and dedicating additional resources to investigate and litigate cases.