Sham contracting risk review checklist
Sham contracting — mischaracterising an employment relationship as an independent contractor arrangement — carries civil penalties of up to $93,900 per contravention for individuals and $469,500 for companies. Following the High Court's decisions in Personnel Contracting and Jamsek, the written contract is the primary reference point. This checklist helps assess risk across contractor arrangements.
This is a 12-step checklist for reviewing sham contracting risk under the Fair Work Act 2009 (Cth). It covers the multi-factor test for employment vs contractor status, ABN arrangements, and remediation.
The checklist
Identify all contractor arrangements
Compile a register of all independent contractor arrangements across the business, including ABN contractors, labour hire, and subcontractors.
Review the written contract
Review each contractor agreement for terms that indicate employment, including exclusivity, restraints, control over how work is performed, and equipment provision.
Apply the multi-factor test
Assess each arrangement against the multi-factor test from Personnel Contracting: control, integration, economic dependence, right to delegate, and provision of tools.
Check for exclusivity clauses
Flag any arrangement where the contractor is required or expected to work exclusively for the principal, as this is a strong indicator of employment.
Assess control over work
Determine the degree to which the principal controls how, when, and where the work is performed, as opposed to specifying only the result.
Review payment structure
Analyse whether payment is based on completed tasks or deliverables (contractor) versus time-based rates with regular pay cycles (employment indicator).
Check ABN and GST registration
Verify that each contractor holds a valid ABN and is registered for GST where required. An ABN alone does not determine contractor status.
Review right to delegate
Confirm whether the contractor has a genuine right to delegate or subcontract work. A personal service obligation is an employment indicator.
Assess risk and profit opportunity
Determine whether the contractor bears genuine commercial risk and has the opportunity to profit from sound management of the engagement.
Check superannuation obligations
Assess whether the contractor is an "employee" for superannuation purposes under the expanded definition, which includes contractors paid principally for labour.
Quantify exposure
Calculate potential exposure including back-payment of entitlements, superannuation guarantee charge, penalties, and payroll tax.
Prepare remediation plan
For high-risk arrangements, prepare a remediation plan: convert to employment, restructure the contract, or document the genuine contractor basis.
When this checklist applies
Use when reviewing contractor arrangements for sham contracting risk, whether proactively or in response to an FWO inquiry or employee claim.
Common pitfalls
- Assuming an ABN and contractor agreement are sufficient to establish contractor status
- Ignoring the practical reality where the contract terms differ from actual working arrangements
- Failing to assess superannuation obligations for labour-hire contractors
- Not considering payroll tax implications of reclassification
- Overlooking the "recklessness" standard for sham contracting penalties
Run this checklist on a real matter
Quillio can review contractor agreements against the multi-factor test, flag high-risk clauses, and estimate exposure across a portfolio of arrangements. See /practice-areas/employment or start a free trial.
General sham contracting guidance only. Contractor vs employee status is fact-specific — obtain tailored employment law advice.
Use this checklist on your matter.
Quillio can run this checklist on a specific NSW conveyancing matter — confirm each item, calculate adjustments, and generate the supporting documents. The free trial requires no credit card.
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