How to Identify Sham Contracting
Sham contracting is identified by looking at the reality of the working relationship, not the job title, ABN, or contract wording. If someone is labelled a “contractor” but works like an employee, sham contracting may be occurring without your knowledge. If you need immediate advice, don’t delay & call Graeme on 0417 998 920 today.
Control Over the Work
Ask who controls how, when, and where the work is done. Indicators of employment:
- The business sets hours, location, and methods of work
- The worker is supervised or directed day-to-day
- Little freedom to refuse work
Ability to Work for Others
Consider whether the worker can operate independently. Red flags to look for:
- Works mainly or exclusively for one business
- Requires permission to work for others
- Relationship is ongoing and indefinite
Payment Method
Look at how the worker is paid. Employee type arrangements:
- Paid hourly, weekly, or fortnightly
- No meaningful connection to delivering a specific result
- No risk of making a loss
Contractors are usually paid per project or outcome, not for time worked.
Tools, Equipment, and Expenses
Ask who provides the tools and covers costs. Employment indicators:
- Business supplies tools, vehicles, uniforms, IT systems
- Worker is reimbursed for expenses
Ability to Subcontract or Delegate
Check whether the worker can send someone else to do the work.
- If the worker must personally perform the job, this points toward employment
- Genuine contractors can usually subcontract or delegate work (subject to safety/quality requirements)
Integration Into the Business
Consider how embedded the worker is. Employment signs:
- Appears on staff rosters
- Uses company email, branding, or uniforms
- Performs core business functions
Leave, Entitlements, and Expectations
- Is the worker expected to seek approval for time off?
- Are they treated like staff in practice?
Superannuation and Tax Arrangements
Sham contracting is often linked to unpaid superannuation. Warning signs:
- No super paid despite the worker being paid mainly for labour
- Contractor is required to get an ABN to “save costs”
- Worker has no real business structure beyond one payer
Under super law, many “contractors” are still deemed employees and must receive super.
The Key Principle
If the worker:
- Is economically dependent on the business & has little autonomy
- Carries little commercial risk
- Is paid for labour, not a business result
Then they are likely an employee, regardless of the contract wording.
Why Early Identification Matters
- Protects workers from lost super, leave, and legal rights
- Reduces back-payment liabilities and penalties for businesses
- Prevents long-term financial harm that is difficult to undo
Download your FREE Sham Contracting Identification Checklist from our website!
Sham Contracting Identification Checklist
Below is a clear, practical checklist to help identify sham contracting under Australian law. The more “Yes” answers, the more likely the arrangement is employment rather than genuine contracting.
Control and Direction
Independence and Business Operation
Payment and Financial Risk
Tools, Equipment, and Expenses
Delegation and Subcontracting
Integration Into the Business
Leave and Availability
Superannuation Red Flags
How to Interpret the Results
- strongMostly Yes answers → Likely employee, potential sham contracting
- Mixed answers → High risk, seek advice
- Mostly No answers → More likely genuine contractor
Important: Contracts, ABNs, invoices, or titles do not determine status. Courts and regulators assess the real working relationship.
Why This Matters
- Workers may lose superannuation, leave, and employment protections
- Businesses face back-payments, penalties, and audits
- Missing super can permanently damage retirement outcomes