Company fined $10k for sham contracting

A construction company has been fined $10,000 after it was revealed two of its directors engaged in sham contracting by encouraging workers to set up one-man companies in a bid to reduce the company’s tax payments. 

The Federal Magistrates Court fined ACT construction company Risetop Construction, and two of its directors, Risto and Mika Rummakainen, after they admitted they had “restructured their business” to avoid paying employee entitlements.

In an agreed statement of facts, the respondents acknowledged they had encouraged workers to set up one-man companies and promised they could “claim a lot more business expenses from your tax by using a company”.

The company was fined $10,000 while the directors were each fined $2,000, well below the maximum penalty of $33,000.

The parties agreed that sham contracting was “widespread in the building and construction industry throughout the ACT”.

The Australian Building and Construction Commission is conducting a national inquiry into sham contracting, which occurs when employees are wrongly presented as contractors to avoid paying employee entitlements and to reduce the payment of taxes.

While unions acknowledge sham contracting is a big problem, they are boycotting the inquiry because they are opposed the ABCC.

Master Builders Australia is a particularly vocal opponent to the ABCC’s involvement, arguing bodies such as the Australian Tax Office and the Fair Work Ombudsman are better placed to police sham contracting.

MBA has also defended contracting as a legitimate form of work, arguing it can reduce costs in a time-sensitive industry.

Commercial builders who use contractors are estimated to save a minimum of 25% on standard wages and 40% on overtime hours, saving on leave, payroll tax, workers’ compensation, superannuation and redundancy.

According to the Construction, Forestry, Mining and Energy Union, the ACT case is an important win that vindicates the union’s campaign on sham contracting.

“Employer bodies like the MBA and Australian Industry Group have tried to deny that sham contracting is a problem,” it says.

“Here we have an employer saying to the court that the practice is ‘rife’ and ‘the norm’ in the industry.”

According to the ATO, sham contracting is particularly rife in the construction industry but is spreading to other industries with “more traditional employee/employer relationships”.

Last month, the Fair Work Ombudsman announced it will conduct audits on three industries – hair and beauty, cleaning and call centres – as part of a major crackdown on sham contracting.

The blitz comes on the back of a revelation that sham contracting is costing the Government $2.4 billion a year in unpaid taxes.