The Closing Loopholes Act 2024 has redefined employers’ obligation to disprove sham contracting.
Effective 27 February 2024, employers who have incorrectly classified an employee as an independent contractor may be penalised for sham contracting, unless they can show that they "reasonably believed" the contract of employment was a contract for services.
In addition, the Closing Loopholes Act 2024 includes:
changes to the definition of employment
new option for independent contractors to challenge unfair contracts
new frameworks to protect independent contractors in certain industries
A new definition has been added to the Fair Work Act to help determine the meaning of “employee” and “employer”. According to the new definition, “employment” is defined by the real substance, practical reality and true nature of the relationship between an individual who may be an employee and a person who may be an employer. The total relationship will be taken into consideration and how the contract is performed in practice.
It’s important to review your employer-worker-contractor relationships regularly to ensure you are paying your workers their lawful entitlements. Regardless of what the written contract might say, if in practice the relationship looks and operates as one of employment then it will be considered an employment relationship.
If you have incorrectly classified an employee as an independent contractor, you risk being penalised for sham contracting. The maximum penalty is $18,780 for individuals and $93,900 for corporations per contravention. You may also be liable for additional penalties if you breach your taxation and superannuation obligations by engaging in sham contracting.
The experienced team of HR consultants at WorkPlacePLUS can assess your independent contractor arrangements and support you to meet your employer obligations.
For more information, please contact us today.
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