What is sham contracting?

Sham contracting is when an employer misrepresents an employment relationship as an independent contracting arrangement. Section 357 of the Fair Work Act 2009 (Cth) prohibits it. Related provisions cover dismissing an employee to re-engage them as a contractor (s358) and making a knowingly false statement to persuade someone to become a contractor (s359). It is unlawful, carries penalties, and is enforced by the Fair Work Ombudsman.

Is my contractor really an employee?

It depends on the whole working relationship, not the label or the written contract alone. Signs that point to employment include working set hours under your direction, having no genuine business of their own, being paid for time rather than a result, using your tools and uniform, being unable to delegate the work, and being engaged on an ongoing and largely exclusive basis. The more of these that apply, the more likely the arrangement is really employment.

Does WHS apply to contractors?

Yes. Under section 7 of the model Work Health and Safety Act, a worker includes contractors, subcontractors and labour-hire staff. So the PCBU owes them the primary duty of care under section 19 regardless of whether they are an employee or a genuine contractor. You cannot avoid your WHS duties by calling someone a contractor — the safety duty applies either way.

What are the penalties for sham contracting?

Sham contracting breaches the Fair Work Act 2009 (Cth) and can attract civil penalties imposed by the courts, plus orders to back-pay employee entitlements that were not provided. The Fair Work Ombudsman investigates and can take enforcement action. Penalty amounts change over time, so check the current figures with the Fair Work Ombudsman or a workplace lawyer.

What should I do if an arrangement looks like sham contracting?

Review the whole relationship against the genuine-contractor indicators, and consider whether the person should be treated as an employee with minimum pay, leave and superannuation. Either way, confirm your WHS duty of care to the worker — the safety duty applies regardless of the label. Get free general advice from the Fair Work Ombudsman on 13 13 94, or speak to a workplace lawyer before relying on a contractor label.

Sham Contracting & WHS Duty Self-Check

Check whether a worker is really a contractor or a sham arrangement under Fair Work Act s357 — and confirm your WHS duty of care applies to the worker either way (model WHS Act s7/s19). General information, not legal advice.

Last verified: 21 June 2026

This is an indicator, not a legal finding. Calling someone a contractor does not make them one. This self-check flags whether an arrangement looks like a possible sham under the Fair Work Act, and confirms the key point on safety: your WHS duty of care applies to the worker either way. It is general information, not legal advice. Get advice before relying on it.

About the arrangement

Answer about how the work really happens — not what the contract calls it. Each answer is a signal toward either an employee relationship or genuine contracting.

Does the person work set hours under your direction?

You set the roster or hours and direct how the work is done day to day.

Do they run their own genuine business with their own ABN?

A real business of their own — quoting other clients, their own ABN, not just an ABN you asked them to get.

Do they mainly provide their own tools and equipment?

They supply the major tools, vehicle or equipment, rather than using yours.

Can they delegate or subcontract the work to someone else?

A genuine right to send a substitute or subcontract, not a personal-service-only arrangement.

Do they work for you on an ongoing and largely exclusive basis?

Long-running and mostly just for you, rather than job-by-job for many clients.

How are they paid?

Paid for the time they work points to employment; paid a quoted price for a result points to contracting.

General information and estimates only — not legal, financial or tax advice. Always check your specific award, agreement or contract, or a qualified professional, before you rely on the result.

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