Fair Work Ombudsman
Citation: FWO-2026-03-13-sham-contracting-media-release
At a glance
- Penalty
- $19,800
- Employees affected
- 3
What happened
The Fair Work Ombudsman (FWO) and the Australian Taxation Office (ATO) are increasing their focus on sham contracting. This occurs when employers misclassify employees as independent contractors to avoid paying entitlements like superannuation, leave, and workers’ compensation. The ATO has observed concerning patterns in industries like building and construction and road freight. The FWO has investigations underway in sectors like building and construction and road transport. One company in Sydney faced penalties for terminating employees and re-engaging them as contractors.
What was decided
The FWO and ATO are warning employers about the consequences of sham contracting. Penalties under the Fair Work Act can be up to $19,800 for individuals, $99,000 for small businesses, and $495,000 or three times the underpayment amount for larger businesses. A Sydney health and wellness research company was penalized nearly $200,000 for terminating and re-engaging workers as contractors. Employers risk additional penalties and charges including PAYG withholding penalties and superannuation guarantee charges.
What it means for employers
Employers must accurately classify workers as employees or independent contractors. Misclassifying employees as contractors to avoid paying entitlements is illegal and can result in significant penalties. Employers should review their worker classification practices to ensure compliance with the Fair Work Act and other relevant legislation.
What it means for employees
Workers should be aware of the signs of sham contracting, such as being treated like an employee but classified as an independent contractor. If you believe you are being misclassified, you should seek advice from the Fair Work Ombudsman or a legal professional.
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https://www.fairwork.gov.au/newsroom/media-releases/2026-media-releases/march-2026/20260313-sham-contracting-media-releaseSend your details to Liquid Employment Lawyers
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This summary was drafted from the published decision and reviewed before publishing. It is general information, not legal advice. For your specific situation, speak to the Fair Work Ombudsman (13 13 94) or a qualified lawyer. About these summaries & corrections