Sham contracting
Sham contracting is when a worker is engaged as a contractor but legally qualifies as an employee. Illegal under the Fair Work Act; common in construction.
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Sham contracting is when a worker is engaged as a contractor (typically using an ABN and a written “subcontract”) but the real nature of the working relationship meets the legal definition of employment. The arrangement misclassifies the worker to avoid paying entitlements such as superannuation, leave, and workers compensation.
Under the Fair Work Act 2009 (Cth), sham contracting is unlawful. From 26 August 2024 the Act uses a whole-of-relationship test (s 15AA): the practical reality of the arrangement, not just the contract label, determines whether someone is an employee or a contractor. Common indicators in residential construction include the worker using the engaging party’s tools, working exclusively for one business, having no ability to subcontract the work, and being paid a fixed hourly rate with no opportunity to profit or lose.
Also known as: false contracting, misclassification
Category: employment, compliance