Australia’s regulator for workplace relations has set its sights on sham contracting, singling out the practice as a priority area in 2019/20.

In an address to the 2019 Annual National Policy Influence Reform Conference in Canberra, Fair Work Ombudsman (FWO) Sandra Parker nominated sham contracting as one of five focus areas for the regulator over the coming financial year.

Sham contracting occurs where employers misclassify workers as contractors rather than employees.

Whilst the law enables people to be employed as contractors under genuine contracting arrangements, unlawful sham contracting occurs where the ‘contracting’ nature of the arrangement is a sham and those who are classified as contractors are really employees.

Where this occurs, workers can be denied rights either to receive award rates of pay or to receive entitlements which are owed to employees such as superannuation or leave.

In construction, responsibility for investigating sham contracting is split between FWO and the Australian Building and Construction Commission (ABCC).

Under the Building and Construction Industry (Improving Productivity) Act 2016 (BCIIP Act), the ABCB generally has jurisdiction in commercial construction.

For areas outside of this such as residential construction, however, responsibility for sham contracting matters falls to FWO.

A spokesperson for FWO indicated that the organisation has recovered more than $575,000 across all industries for more than 130 workers as a result of sham contracting investigations over the five years to 2017/18.

Over that time, FWO had levied more than $1.8 million in penalties against contravening businesses.

Speaking particularly of construction, the spokesperson said the sector consistently ranks in the top five industries for sham contracting disputes resolved by the FWO and accounted for 9 percent of all sham contracting disputes resolved by FWO in 2018/19.

In her address, Parker outlined a stronger approach to enforcement in 2019/20.

Where workers complain of non-payment or underpayment, she says FWO has the power to compel employer records and that FWO inspectors can issue infringement notices whereby either records are unsatisfactory or the inspector believes that underpayment has occurred.

The regulator will also make greater use of compliance notices, which compel employers to get their house in order.

“While it can be difficult as a regulator to find the right balance between using enforcement tools and getting a timely outcome, I am conscious that Parliament has given us increased powers and more resources, so it’s on us to send a strong message of deterrence to would-be lawbreakers,” Parker said.

Outside of sham contracting, FWO in 2019/20 will focus on improving employment related compliance in areas such as fast food, restaurants and cafes; horticulture and the harvest trail; managing supply chain risks and the franchising sector.