Sham Contracting

What is sham contracting?

According to Employment New Zealand, sham contracting arrangement occurs if an employer deliberately attempts to disguise an employment relationship as a contracting arrangement.

The most common reason businesses partake in sham contracting is to avoid paying employee entitlements and obligations–such as minimum wages, PAYE Tax, sick leave and paid public holidays.

What are the potential ramifications of sham contracting?  

The Employment Relations Authority will not support a sham contracting arrangement. If found guilty of sham contracting, businesses can be subject to a number of penalties including back paying employee entitlements and being charged hefty fines.

To ensure that your business is not engaging in sham contracting, it’s crucial that you are employing your staff under the proper employment frameworks.

Employment New Zealand outlines the key differences between an Employee and Contractor here.

What about external labour-hire suppliers?

If you are working with a labour-hire supplier it’s wise to seek to understand the relationship they have with the workers they send you.

Be aware of

  • Labour-hire companies treating their workers as independent contractors, however, charging you the oncosts of employee entitlements.
  • The rate the workers are paid–ensure they are in line with the minimum wage.
  • The supplier’s liability and insurance policies.

Sidekicker takes on the responsibility of compliance for clients–our Sidekicks are employed by us as casual employees and we take care of all employee entitlements and obligations, including Workers Compensation and Kiwi Saver.

If you’re unsure about any of your arrangements with labour hire suppliers or your relationship with particular contractors, the best thing you can do is seek legal advice from employment lawyers.

Read nextWhat you need to know to understand the Gig Economy.

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