For any business, hiring the right people is essential. Time and financial pressures are real and if you deal with staffing levels and still have a full set of fingernails, you’re in the minority. Some labour hire hosts have failed to do their due diligence and taken the unethical approach to hiring known as sham contracting. And as we’ll see, sham contracting can have terrible consequences on both the workers that it exploits and the companies that make the mistake of engaging in it.

What is sham contracting?

We all know the difference between an employee and an independent contractor, right? Well, it seems that not all of us do. And if employers blur or walk right over that line then they leave themselves open to accusations of sham contracting. The following practises constitute sham contracting:

• If an employer knowingly indicates to an employee that they’re an independent contractor when they aren’t
• Dishonestly convinces an employee to do the same work as an independent contractor
• Dismisses or threatens to dismiss an employee with the intention of hiring them to do the same work (or mostly the same work) as an independent contractor.

Why do companies sham contract?

Companies often engage in sham contracting to avoid paying legal entitlements to employees, this cuts costs which in turn can give the appearance of a cheaper agency rate.

Sometimes though it’s just negligence. We don’t want to sound to judgemental here, but you can usually sum up the reasoning in terms of greed and irresponsibility. And sham contracting is unethical and illegal, so we are going to judge a bit.

But I use a labour hire company so it’s not my responsibility, right?

Wrong. Due to changes in the licencing system the responsibility for breaking the rules lies with the labour hire company and the host. Pleading ignorance is not an option. Labour Hire Licenses are checked by the ATO and the Fair Work Ombudsman, this is leading to more and more investigations of this practice, and even more in the near future with the Federal Government’s recent proposed labour hire reforms. So, the chances are you won’t get away with it. Be warned, the fines that can result can be a major setback and the ensuing reputational damage will linger.

What can happen if I sham contract?

Exploiting workers through sham contracting is a serious offence. And that means serious fines. The maximum penalty is $16,500 for individuals and $82,500 for corporations per contravention*. You and your company may also face claims for compensation if the employee has suffered as a result of this practice.

But that is by no means the end of it. Unethical behaviour such as sham contracting can expose your business to the court of popular opinion. And it will be found wanting. The most important asset your business possesses is its reputation. So, if your company becomes known for unethical, exploitative and even illegal practices, your brand may never recover. No short-term penny pinching can possibly be worth that.

What can I do to avoid sham contracting?

Now you’re asking the right question. To ensure that you’re hiring through a recruitment agency that works to the highest standards of conduct, make sure that you partner with a company that’s an RCSA member and a Registered Labour Hire Provider. Hey ­– like us! RCSA members are not only the best at finding, hiring, and retaining a professional workforce, they scrupulously observe all legal and ethical protocols. They are qualified, checked and vetted. They do all their homework on time and have the little gold stars to prove it.

If your recruiters aren’t RCSA members and Registered Labour Hire Providers, avoid them like a bad smell, and if they have a bad smell, avoid them even more.

Blaze Staffing Solutions have been an RCSA member and Registered Labour Hire Provider since 2018 when the Labour Hire Licensing Act came into force, we service across Melbourne, Brisbane and Sydney. Our specialisations include temporary and permanent staffing for manufacturing, operations and warehousing industries, particularly within FMCG, food, pharmaceutical and therapeutic goods sectors. We work to the highest standard of integrity 24/7 to provide you with a professional workforce. Our candidates are pre-screened, interviewed and market ready. We do our due diligence to ensure you have the right people on the right contracts to get the job done.

Working with recruiting agencies like us is the best way to avoid the nightmare of sham contracting. Don’t gamble with your brand, talk to the recruitment experts.

* https://www.fairwork.gov.au/find-help-for/independent-contractors#sham-contracting