The trick employers use to pay you less

An industry group has backed penalty rates for hair and beauty industry workers.

An industry group has backed penalty rates for hair and beauty industry workers. Photo: Getty

A growing number of workers are being deprived of “thousands and thousands of dollars” each year by an employment scam, a legal expert has warned.

To cut costs, bosses are increasingly forcing their workers to pretend to be contractors, thereby depriving them of their right to superannuation, proper wages, and leave benefits.

The problem – known as ‘sham contracting’ – is especially prevalent in low-paid service sectors, and is only getting worse, says a senior lawyer at Maurice Blackburn.

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“They shroud it in a little veneer of an Australian Business Number (ABN) and employers think they can get away with it, but that’s not actually the legal position,” employment lawyer Kamal Farouque says.

Many “vulnerable” workers in the transport, hairdressing, security, poultry, vegetable processing and construction industries are being underpaid by invoice because of a disparity in bargaining power, he says.


Hairdressers can also miss out on “thousands” in super and benefits. Photo: Getty

“In many instances, it involves taking advantage of those not at the most skilled end of the market – people who are vulnerable and who may not be from English-speaking backgrounds,” Mr Farouque says.

Sham contracting is part of the growing trend towards insecure work, which also includes casual work, short term work and labour hire, says a spokeswoman for the National Union of Workers (NUW).

“Workers across Australia are being exploited,” says NUW Victorian assistant secretary Susie Allison. “These arrangements are all about shifting the risk onto workers and away from the companies who should be employing them.”

Today, sixty per cent of the workforce is employed insecurely, compared to only 15 per cent in 1984.

Missing $15,000 in super

In a recent blog post, Australian Unions gave the example of Liam, an employee with 10 years’ experience who was forced by a new boss to apply for an ABN.

“He said I would be self-employed,” wrote Liam. “I did this because I needed to keep my job.”

The worker did not think he was being ripped off because his hourly rate had not been reduced, but the union reminded him that he was probably missing out on sick pay, holiday pay, and retirement savings.

Over a five-year period, Liam could have missed out on $15,000 in superannuation alone, the union estimated.

This trend is being driven by employers’ desire – a “bad motivation” – to avoid the law, says Mr Farouque.

How to tell if you are missing out

The warning sign of a sham contract is that you are being paid by ABN, despite your work being controlled entirely by your boss, who provides your equipment and does not allow you to delegate your tasks to anyone else.

The Australian Tax Office says there are many myths about contracted workers, including that widespread use or worker approval makes it okay; that sham contracting is allowed for short-term jobs; and that there is such a thing as an 80/20 rule that protects employers.

To defeat a sham contract, workers can contact a union, an employment law firm or the Fair Work Ombudsman.

“There are significant legal risks for employers who purport to use sham contracting arrangements,” warns lawyer Kamal Farouque.

Shammers who are caught may be fined and forced to repay wages and benefits.

It is unlawful for a worker to be threatened or lied to in order to force them to become so-called contractors.

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