Home' Australian Automotive Aftermarket Magazine : Australian Auto Aftermarket E-zine December Contents 52 AUTOMOTIVE AFTERMARKET MAGAZINE DECEMBER 2012
What would usually occur is that an
individual operating under an ABN is engaged
on a flat piece rate (e.g. per vehicle repair) or a
flat hourly rate and is paid in a lump sum upon
furnishing an invoice to the business.
In such a case, taxation and superannuation
responsibilities remain the responsibility of the
This arrangement is considered sham
contracting under the provisions of the
Independent Contractors Act 2006 and is
Both the business owner and the 'contractor'
usually agree to this type of relationship as both
(or either party) may see it as beneficial.
In such a contract arrangement, the
employer avoids the payment of overtime,
penalties, annual leave, superannuation and
their requirement to make taxation deductions.
The employee is usually paid a higher hourly
rate than they would otherwise normally earn as
an employee and are able to claim expenses for
taxation purposes as a sole trader.
However, the illegality of this type of
arrangement makes it high risk for both parties,
although arguably the greater onus is on the
employer to ensure the requirements of a bona-
fide employment relationship are met.
There are a number of factors which give rise
to the distinction between an employee and an
It must be noted that no single factor can
determine if a person is a contractor or an
It is the totality of the relationship between
the parties that must be considered.
Things to consider in determining whether or
not a person is a contractor or an employee:
• Does the worker have the right to exercise
control over work performed?
• Does the worker carry out core business tasks
i.e. vehicle repairs, wheel alignments etc.?
• Does the worker wear the employer's
• Does the worker supply and maintain their
own tools or equipment to carry out the
• Is the worker paid per task completed rather
than on a per hour basis?
• Does the worker bear any risk of loss (i.e. will
they still be paid if the job is not produced to
a high enough standard)?
• Is the worker free to work for other shops or
delegate tasks to others?
• Is taxation deducted?
Is the worker responsible for their own workers'
• Is the employee paid when they take annual
• Does the contract describe the worker as a
AAAA Employer Assist highlights that these
categories are only a guide of what the Courts or
statutory bodies may consider.
Penalties that may be imposed on
businesses engaged in sham
The Fair Work Ombudsman can pursue a
number of different courses of action from
cautioning (in the case of unintentionally
entering into this type of relationship) or
imposing a requirement to undertake
education/training through to imposing fines.
A recent case that came before Federal
Magistrate Barnes in New South Wales has
served as a timely reminder that employers will
be penalised for sham contracting.
In that case, the owner-operator of a Sydney-
based trucking company was fined $13,024 for
sham contracting and underpaying an employee.
The employee was dismissed in early 2009
and was not paid out his entitlements, including
accrued annual leave.
The employee was then immediately re-hired
under the guise of an independent contractor.
The court found that this was
misrepresentation -- the reality was that this was
still an employment relationship.
AAAA Employer Assist recommends that if
an employer has engaged or is looking to engage
a 'contractor' that they look closely at the
legitimacy of such an arrangement.
Just call the AAAA Employer Assist hotline
and the staff can assist you with this
determination or they can look at your existing
relationships and provide you with advice on how
to convert your 'contractors' over to employees.
In short, the relationship must be genuine.
We highlight that it is not enough just to have
workers provide an ABN or an invoice for
payment, or that the title of the
contract/agreement states 'independent
We strongly advise against improperly
structuring working arrangements that despite
an ABN, a contract and payment upon invoice
still bear no difference to a typical relationship
between an employer and an employee.
SHAM CONTRACTING IN THE
A sham contracting arrangement is one where an employer and an employee enter into a 'contractor'
relationship rather than what would legitimately be considered an employment relationship.
AAAA Employer Assist can assist you in understanding your employment obligations
under the Fair Work system including any modern award terms or conditions.
For further assistance or any enquiries, contact the AAAA Employer Assist team on
1300 735 306 any week day between 9am and 5pm in your state. For a full overview of
the service, interesting articles about employment law issues, visit the website
We look forward to hearing from you soon!
Gwen McIlroy and the AAAA Employer Assist team
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