Sham Contracting

Sham Contracting is when an Independent Contractor Agreement Violates Employee Rights and Employment Law

A sham contracting arrangement occurs where an employer attempts to disguise an employment relationship as an independent contractor agreement, usually for the purposes of avoiding responsibility for employee entitlements.   Under the sham contracting provisions of the Workplace Relations Act 1996, an Employer can not:

• intentionally disguise a person’s employment, or an offer of employment, as an independent contractor agreement;
• dismiss, or threaten to dismiss an Employee for the sole or dominant purpose of re-engaging the person as an Independent Contractor;
• make a knowingly false statement for the purpose of persuading an Employee to become an Independent Contractor.

The Act provides serious penalties for breaches of employment law. Employees and Independent Contractors can request assistance from the Fair Work Ombudsman if they feel their have been breached.

You can compare your situation by clicking here and decide if you are an employee or a contractor. 

When security companies contract to supply security services to a business they take into account all the costs concerned as well as adding a profit margin.  Security Contractors account for the costs and conditions contained in the Security Services Award.

When a security contractor makes a proposal to supply security services, the hourly rate charged for the provision of security services is approximately the same.

Some Security businesses are engaging in sham sub-contractual arrangements to reduce or do away with conditions such as overtime, penalty rates and leave entitlements. Work is offered on the condition that a worker obtains an Australian Business Number (ABN).

They are then asked to invoice the employer for work performed, thus becoming a sub-contractor.

If you are being paid under a contract that is wholly or principally for labour, then the person or business paying you has to make super contributions on your behalf, even if you quote an Australian business number (ABN).

In many cases, hourly rates are very low that there appears little margin between the amounts invoiced and what a person would receive on award wage.

Many security sub-contractors are clearly employees. They work exclusively for the Security Contractor, they work as directed, use no personal plant or equipment, have settled hours, are paid regularly. The average on-cost for a employee to a security company  is 22% to 25% and the average on-cost for a sub-contractor is under 10%.  

Security Sub-contractors do not have coverage by employment laws or collective agreements negotiated by a union, therefore have the least bargaining power.

Considering a Independent Contractor Agreement?

If you choose to enter into a sub-contracting arrangement with a Security company, consider the following points.

Judge whether it is in your interests or the interests of the Security company for you to enter into this legally binding agreement as an independent contractor.

Be aware that in the states of New South Wales and Victoria, if you sub-contract to do security work, you must hold an additional security license. In New South Wales, it is the Masters Licence and Victoria it is the Private Security Business Licence

A sub-contracting arrangement shifts responsibility from the Security Contractor to the individual sub-contractor for:

• Payment of tax. You are required to pay your income tax as well as Goods and Services Tax (GST). The purpose of an Australian Business Number (ABN) is to track the payments of money. The Security Contractor when he pays you, submits to the Taxation Department your ABN and the amount paid. The Taxation Department knows when you submit your tax return how much tax you are liable to pay.
• Payment of superannuation. If you are being paid under a contract that is wholly or principally for labour, then the person or business paying you have to make super contributions on your behalf, even if you quote an Australian Business Number (ABN). Click here for further details. 
• Payment of income protection insurance. You need to take out separate income protection insurance to cover yourself because you do not have any workers compensation rights. In the security industry the chance of being injured is quite high. Centrelink payments cannot make up for the loss of income. For an online quotation for income protection insurance click here.

• Payment of public liability insurance. Making a mistake in your job which causes property damage, results in false arrest, inflicts assault or causes death can make you legally responsible for damages to the injured party. If you are successfully sued and you are unable to pay damages to the other party, the courts have the right to seize your property in payment. Having Public Liability Insurance ensures that you can meet these costs if they occur.
• Workplace Health and Safety considerations. Security Sub-contractors work for small Security Contractors, which are less likely to have health and safety assets, knowledge or information. This forces you to work in areas that are unsafe or unhealthy. In addition, the cost of safety gear (high visibility vests, safety helmets etc) is yours because the Security Contractor has no duty to supply you with this equipment.
• Employment Security. Security Sub-contractors have poor coverage by employment set of laws or union negotiated collective agreements. You have the least bargaining power, therefore conditions of the Security Award or Collective Agreement do not apply to you.

If you are currently working as a Security Sub-Contractor, go to the Pay Calculator page and enter your details as if you were an employee. Because holiday pay and sick leave are accrued, designate yourself as a 'Casual'. This is because these entitlements are expressed as a dollar figure in the Casual Loading.

This calculator gives you the minimum amount you would receive as an employee at this time. Allow for pay increases over the years that your contract extends. Now add to this the cost of income protection insurance, public liability insurance or approximately 25% more.  Make sure the Contractor is paying your superannuation instalments.

Unless you are receiving at least 25% or more for your work than an employee then the Security Contractor has your money in his pocket.

If you know of Security businesses engaging in Sham contracting arrangements then report them to the Fair Work Ombudsman and expose them with a post to the Security Guard Forum.