Regulators have stepped up enforcement against sham contracting, with the Australian Taxation Office (ATO) and the Fair Work Ombudsman (FWO) announcing increased scrutiny across several industries, including road freight.
The two agencies issued a joint warning that trucking businesses found to be incorrectly classifying workers as independent contractors could face significant financial penalties.
What Is Sham Contracting?
Sham contracting occurs when a business misrepresents an employment relationship as an independent contracting arrangement.
This is often done to avoid obligations such as:
- Paying superannuation
- Providing leave entitlements
- Covering workers’ compensation
- Meeting other employee protections under workplace laws
Regulators say simply paying someone through an Australian Business Number (ABN) does not automatically make them a contractor.
If a worker is treated like an employee but labelled as a contractor, the arrangement may breach workplace and taxation laws.
Major Penalties for Non-Compliance
Businesses found to be engaging in sham contracting can face substantial penalties.
Current maximum penalties per contravention include:
- $19,800 for individuals
- $99,000 for small businesses (fewer than 15 employees)
- Up to $495,000 for larger businesses, or three times the underpayment amount
Additional liabilities may also apply, including:
- PAYG withholding penalties for failing to deduct tax
- The superannuation guarantee charge, which includes the unpaid super amount, interest and administration fees
- Additional penalties of up to 200% of the unpaid superannuation
Freight Industry Under the Microscope
Authorities say intelligence and data analysis have identified concerning behaviour in several industries, including road freight.
The Fair Work Ombudsman has confirmed that active investigations are already underway involving suspected sham contracting arrangements in the transport sector.
Regulators warn that businesses cannot:
- Mislabel employees as contractors without a valid basis
- Provide false or misleading information to convince workers to become contractors
- Dismiss employees and re-engage them as contractors to perform the same work
These practices are considered unlawful and may lead to enforcement action.
Data Matching Revealing Potential Risks
The ATO is using extensive data matching to identify potential sham contracting activity.
Through the Taxable Payments Annual Report (TPAR) system, the agency has visibility into payments made to contractors across multiple industries, including road freight.
During the 2024–25 financial year, the ATO tracked:
- Nearly 185,000 businesses making contractor payments
- More than 1.4 million contractors
- Payments exceeding $507 billion
This data is cross-referenced with tax returns, ABN records, superannuation reporting and payroll systems to detect irregularities.
Examples of potential warning signs include contractors who work almost exclusively for a single business or individuals operating under an ABN but failing to declare income.
Industry Tip-Offs Driving Investigations
Community tip-offs are also playing a major role in identifying suspected sham contracting.
In the last financial year, regulators received more than 800 tip-offs relating to the road freight sector, with nearly a quarter raising concerns about sham contracting arrangements.
The crackdown forms part of the ATO-led Shadow Economy Taskforce, which works with multiple regulators to tackle tax evasion and unlawful employment practices.
What This Means for Operators
For freight businesses, the message from regulators is clear: worker classification must be accurate and compliant with both tax and workplace laws.
Incorrectly labelling workers as contractors can expose businesses to serious financial penalties, legal risk and reputational damage.
For drivers, understanding whether they are legitimately operating as contractors or employees is also critical to ensuring they receive the correct entitlements.
At Logbook Checker, we support efforts to strengthen compliance and maintain a fair, sustainable freight industry. Ensuring employment arrangements are transparent and lawful helps protect drivers, support legitimate operators and improve safety outcomes across the supply chain.