Sham Contracting

Sham contracting is when an employer misrepresents employment as an independent contracting arrangement. An employer will have contravened the Fair Work Act if they represent or say that someone is an independent contractor when in reality they are actually an employee.

The Contractor Management Team has been setup to help identify scenarios in which a potential for sham contracting may arise unknowingly to the engager. In assessing engagements, we aim to remove any risk of sham contracting, elevating the potential for penalties to apply to the University and Engager themselves.

  • When can I engage someone as an independent contractor?

    An independent contractor is usually a self-employed worker who supplies their labour as part of a business they are conducting on their own account for multiple clients. An independent contractor will enter into a contract for services with the University and is usually paid to achieve agreed results within an agreed timeframe. They generally control how and when their work is performed.

    An employee supplies their labour to an employer under a contract of service. As employees, University staff members are covered by the University of Adelaide Enterprise Agreement 2023-2025 (as amended) and are required to undertake work in a particular way in accordance with the University’s policies, practices and procedures. They usually report to a supervisor who will be responsible for their work direction.

    To determine whether a worker really will be an independent contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which you want the work to be performed. Just because someone calls themselves an independent contractor, has an ABN or specialist skills or you only need them during busy periods doesn’t mean they are an independent contractor.

    If you make a mistake and the person you engage is not an independent contractor, under the Fair Work Act 2009 (Cth), there are potentially significant consequences for you which may include:

    • The worker can bring a claim for back-pay, accrued annual leave and/ or long service leave under the University’s Enterprise Agreement;
    • The worker can bring an unfair dismissal or an adverse action claim; and
    • You and the University may be required to pay a financial penalty.

    Look at each scenario carefully before you decide to engage someone as an independent contractor. The following is a check box list to assist you in making this determination. If you can tick any of the following boxes with respect to someone you are thinking about engaging as an independent contractor, please first speak to your HR Advisor as they might well be a staff member at law.

    • Will the University direct the way the worker performs their work?
    • Will the worker perform the work in hours set by the University?
    • Will the worker work within and be considered to be part of the University?
    • Will the worker have a University telephone number or email address?
    • Will the worker always perform the work personally, i.e. cannot delegate the work?
    • Will the worker be paid for time worked, rather than paid according to outcomes achieved based on quotes they provide?
    • Is the worker an ‘individual’ rather than a corporation?
    • Will the worker only perform work for the University, i.e. doesn’t have other clients?
    • Will the worker only, or mostly, use tools and equipment supplied by the University to perform the work?
    • If the worker uses their own tools and equipment, will the University reimburse the worker for this?
    • Is the University legally responsible for the work performed by the worker and liable for the cost of rectifying defects in the work?
    • Are risks of the work the worker performs insured by the University?
  • Sham contracting arrangements

    If you engage someone as an independent contractor but they are actually a staff member, the contract is a sham. A ‘sham’ contracting arrangement may mean that a person misses out on a range of entitlements that would be available to them under the University’s Enterprise Agreement. You expose the University to the risk of a claim being made under the Fair Work Act 2009 (Cth) for breach of the University’s Enterprise Agreement and/or underpayment.

    It may also mean that other legal obligations that are binding on the University are being avoided, for instance, legal obligations pertaining to the payment of taxation and/ or superannuation.

    The University must not dismiss, or threaten to dismiss, a staff member in order to re-engage them (or another person) as an independent contractor to undertake the same work. Nor should a University staff member be asked to establish themselves as a sole trader, or an incorporated body, in order to perform work ordinarily performed by staff members of the University.

    The Fair Work Act 2009 (Cth) protects staff members from ‘sham’ contracting arrangements and imposes significant civil penalties on employers, as well as staff members, who are found to have deliberately misrepresented an arrangement as an independent contracting arrangement.

    If the University is found to have contravened the sham contracting provisions of the Fair Work Act 2009 (Cth), then the Fair Work Commission may make a number of orders against you and the University which include;

    1. Fines against the University of up to $66,000 per contravention;
    2. Fines for you personally of up to $13,320 per contravention;
    3. Reinstatement of a dismissed person; and
    4. Compensation.
  • Independent contractors, employees and ‘sham’ contracting arrangements

    The purpose of these FAQs is to provide guidance on effectively engaging Independent Contractors and avoiding sham contracting arrangements. This information should be read in conjunction with the contract management process.

    Further information can be found on the Fair Work Ombudsman – Independent Contractors web page  and on the ATO - Employee or Contractor webpage ,

    Advice contained in this information sheet is of a general nature only. Consult your HR advisor if you have any questions or concerns about an employment arrangement. 

  • Does being paid through Human Resources make them an employee

    No, the Hr system supports arrangements for a range of people, not all of whom are employees. The employer obligation of superannuation or payroll tax is required to meet legislative requirement and does not not make these individuals employees.

    The extended definition describes when a contractor is required to have superannuation paid.


  • Can a staff member be an independent contractor at the same time?

    No, individuals who are currently employed by the University in any capacity, including continuing, fixed term, part time or full time, casual and sessional appointments cannot be engaged as an independent contractor at the same time. A staff appointment should not be offered to a person during the period of a contracting agreement with the University.

  • Restrictions on re-engaging form University staff as indepent contractors to avoid sham contracting

    Special care should be taken when considering engaging a former University staff member who accepted a voluntary redundancy. The University’s Enterprise Agreement specifically restricts the re-employment of such people within 2 years of their acceptance of a voluntary redundancy, unless you have authority from the Vice-Chancellor. The University only condones the engagement of such a staff member in circumstances of critical business need because of the significant risks which include:

    1. Potentially undermining the genuineness of the redundancy;
    2. Exposing the staff member to having the favourable tax treatment of their redundancy overturned by the Australian Tax Office; and
    3. Creating a sham contract.

    If you find yourself in this situation, contact your HR Advisor before engaging the former staff member.

  • If someone I want to engage, refuses to become an independent contractor, can I dismiss them?

    It is illegal to dismiss or threaten to dismiss an employee if they don’t become an independent contractor.

  • Sham contracting examples