Sham Contracting — Penalties & the Law
Sham Contracting — Penalties & the Law
Calling an employee a "contractor" to dodge entitlements is illegal — and since the Closing Loopholes changes the fines are bigger and the defence is harder. The figures every AU business owner should know before they hire.
Maximum civil penalty (per contravention, 2025-26)
| Commonwealth penalty unit (from 7 Nov 2024) | $330 |
| Individual (e.g. director / manager) | $19,800 (60 units) |
| Business with under 15 employees | $99,000 (300 units) |
| Business with 15+ employees | Greater of $495,000 or 3× the underpayment |
What counts as sham contracting (Fair Work Act)
- s357 — telling a worker they're a contractor when they're really an employee
- s358 — dismissing or threatening to dismiss an employee to re-engage them as a contractor
- s359 — knowingly making a false statement to persuade an employee to become a contractor
The defence got harder
- Old test: the employer wasn't 'reckless' about the worker's true status
- Now (post Closing Loopholes): the employer must have 'reasonably believed' the worker was a contractor — a stricter test
Guidance only — not legal advice. Employee vs contractor turns on the real substance of the relationship, not the label or whether an ABN was quoted. Figures current 2025-26 (penalty unit $330). Check fairwork.gov.au.
Sources: Fair Work Act 2009 (ss357-359) · Fair Work Ombudsman · DEWR — Commonwealth penalty unit value
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