Sham contract

Sham contracting occurs when an employer disguises an employee as an independent contractor. This misrepresentation can be done to avoid responsibilities like providing employee entitlements. It involves situations where a worker is actually an employee based on their work conditions but is labelled as a contractor. This is illegal and can lead to penalties.

Sham contracting penalties

Rates current from 1 July 2026.

Under the Fair Work Act, an employer must not misrepresent employment as an independent contracting arrangement, dismiss or threaten to dismiss an employee to re-engage them as a contractor, or make false statements to persuade someone to become a contractor. These are civil contraventions with maximum penalties, for conduct from 1 July 2026, of $21,840 for an individual, $109,200 for a small business company and $546,000 for other companies. The employer may also owe back pay, leave and super. For example, requiring a receptionist to get an ABN and invoice you for the same job could be sham contracting.

Read our guide to employee versus independent contractor.