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Issue #1511      27 July 2011

Alarming growth in sham contracting

The rate of sham contracting in the construction industry is growing at an alarming rate.

The rise means more unscrupulous employers avoiding more tax and more workers being denied superannuation, acceptable wages and conditions and support if they are injured at work.

Sham contracting occurs when a company forces workers to work as sub-contractors, rather than hiring them lawfully as employees. These contractors are employees in everything but name – the employer controls their work and supplies materials.

As well as evading tax, unscrupulous employers avoid providing workers’ rights and entitlements like sick leave and holiday leave, overtime and penalty rates and, in many cases, superannuation payments and workers’ compensation insurance.

CFMEU Construction Division national secretary Dave Noonan said the CFMEU had obtained unpublished data from the ABS Forms of Employment Survey (conducted in November 2010).

The ABS data shows between November 2009 and November 2010, the total number of persons working as independent contractors in the Australian construction industry grew from 336,000 to 341,000, an increase of 5,000 or 1.5 percent.

But the biggest concern is the 25 percent growth in the number of labourers working as “independent contractors” in construction between 2009 and 2010. This is despite the Australian Tax Office’s March 2009 declaration that for tax purposes labourers are by definition employees, not independent contractors.

The unpublished ABS data show that:

In November 2010, there were 61,400 labourers who reported working as independent contractors in the Australian construction industry – a very large increase of 12,400 or 25 percent since November 2009.

This means that more than one-third (36 percent) of all labourers in the Australian construction industry are now working as “independent contractors”.

By contrast, the number of persons working as independent contractors in all other occupations (ie non-labouring jobs) in construction actually fell by 5,000 or 3 percent in the 12 months to November 2010.

“If the regulators were doing their job, the number of labourers working as independent contractors would be going down, not growing by a massive 25 percent in 12 months,” Mr Noonan said.

“These statistics are concrete proof of what CFMEU members tell us is happening on sites across Australia – that labourers are being forced to declare themselves to be sham contractors, so construction companies can dodge tax.

“The ATO’s ruling on this in March 2009 is crystal clear. A labourer cannot be an independent contractor. The fact we have seen a growth in labourers on independent contracts shows the current system of enforcement is a dismal failure.

“The effect of this large growth in labourers in sham contracting arrangements is to make it even harder for employers who want to do the right thing,” Mr Noonan added.

Based on the estimating method set out in the CFMEU’s 2011 report into sham contracting “Race to the Bottom”, the total number of persons working in sham contracting arrangements in construction in November 2010 is now estimated to be in the range of 97,000 to 164,000 workers.

This represents between 29 percent and 48 percent of all independent contractors working in construction (up from 26-46 percent as estimated in the 2011 CFMEU report) and 9-16 percent of all persons working in construction.

“This finding is further evidence that current policies to prevent the growth of sham contracting and tax avoidance are clearly failing and need reform,” Mr Noonan said.

“The CFMEU supports legitimate contractors, and we have plenty of them in our membership … We also acknowledge the package of recent Budget measures as evidence the federal government has identified the problem, and made a good start, These ABS figures underline the importance of that package, the need for further reforms and stronger enforcement in tackling sham contracting.”  

Next article – Curry with Comrades

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