Contracting crackdown across services sector

The Fair Work Ombudsman will conduct audits on three industries – hair and beauty, cleaning and call centres – as part of a major crackdown on sham contracting.

The blitz comes on the back of a revelation that sham contracting is costing the Government $2.4 billion a year in unpaid taxes.

Sham contracting occurs when an employee is made to believe they are providing a contact for services, allowing the employer to avoid providing leave, superannuation or fair wages.

According to the Australian Taxation Office, sham contracting is particularly rife in the construction industry but is spreading to other industries with “more traditional employee/employer relationships”.

Earlier this month, tax commissioner Michael D’Ascenzo said cases have been found in call centres, cleaning, security, logistics, retail, tourism, hospitality, education, aged care, health and telecommunications.

“Workers caught up in sham contracting are often from disadvantaged groups who lack bargaining power or are not aware of their entitlements – youth and people new to Australia are key groups,” he says.

Meanwhile, employer groups such as the Master Builders Association have defended contracting as a legitimate form of work, which can reduce costs in a time-sensitive industry.

Commercial builders who use contractors are estimated to save a minimum of 25% on standard wages and 40% on overtime hours, savings on leave, payroll tax, workers’ compensation, superannuation and redundancy.

D’Ascenzo says his office has no issue with genuine and productive independent contracting arrangements, stating most of Australia’s 800,000 employers do the right thing.

But he says sham contracting aims to sidestep an employer’s obligations to workers such as PAYG withholding, superannuation guarantee, insurance and workplace entitlements.

The Fair Work Ombudsman is currently investigating 26 cases involving alleged sham contracting after receiving 687 phone inquiries between July and December last year.

The courts have already finalised 25 prosecutions of all types since July 2010, imposing $1.5 million in penalties.

In 2009-10, the courts finalised 60 matters, imposing penalties of more than $2 million. The courts can impose a maximum penalty of $33,000 for each sham contracting breach that is proven.

A spokesperson for the Ombudsman says the FWO website attracted 2.1 million visits between July and December last year compared with 2.9 million hits for the entire 2009-10 financial year.

He says employers and employees are increasingly using online tools to calculate rates of pay under the new modern award system and to check which award is applicable.

The spokesperson says most users of the site are small businesses with fewer than 15 employees, as these businesses have fewer support mechanisms available to them.

“If you’re working for Woolworths, you can go to the HR people. If you’re working for the local fish and chip shop, you don’t have anywhere to turn,” he says.

He says while the level of understanding is still emerging, the level of engagement is encouraging.