Sham contracting

7 March 2018

Dental practice, in common with many other businesses, are increasingly making use of more flexible workplace arrangements including a marked trend towards contractual towards independent contractor relationships.
 
However, as the Fair Work Ombudsman points out, practice owners need to be extremely careful that any contractual arrangements they put in place comply with the full measure of the law and are not deemed as "sham contracting" which is defined as:
 
"A sham contracting arrangement is when an employer attempts to disguise an employment relationship as an independent contracting arrangement. This is usually done to avoid responsibility for employee entitlements."
 
These entitlements can include leave entitlements, PAYG tax, minimum rates of pay and award conditions, superannuation, fringe benefits and certain work (occupational) health and safety requirements.
 
Any attempt by a practice owner to misrepresent an employment relationship as an independent contractor one is illegal and could prove costly for the practice concerned, with serious penalties under the Fair Work Act for any employer who contravenes these provisions.
 
The Fair Work Ombudsman outlines that "under the sham contracting provisions of the Fair Work Act, an employer cannot:
 
misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement
 
dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor
 
make a knowingly false statement to persuade or influence an employee to become an independent contractor."
 
If you're unsure what the difference between employment and contracting is, and what determines which type of employment arrangement is both suitable and legally compliant, you can reference What is Sham Contracting? in the ADA’s Human Resources Hub (member log-in required) or seek advice from ADA’s HR Advisory Service (by phone on 1300 232 462 or email).

The Fair Work Ombudsman and the Australian Tax Office's Employee/contractor decision tool are also useful. Practice owners should also seek advice from the Office of State Revenue in their state or territory. 
 
As an employee, and particularly a recent graduate taking up one of your first paid positions in the dental profession, you should make sure you don’t agree to any sham work contract which will nullify your legal rights as an employee, including financial benefits and employment protections. When you are assessing any contract, be conscious of all the things an employer should provide under the Fair Work Act 2009. 
 
If you are being asked to enter into an independent contractor arrangement, or you want to check what your rights are, and you are an ADA member, you can seek advice from the ADA's HR Hotline or contact the Fair Work Ombudsman to ensure the basis of your employment is fully compliant with all legal provisions.