Understanding and Preventing Sham Contracting in Dental Practices

Understanding and Preventing Sham Contracting in Dental Practices

Sham contracting, a practice in which an employer deliberately or mistakenly misrepresents an employment relationship as an independent contracting arrangement, is a significant concern across various industries. In Australia, where labour laws are designed to protect employees' rights and ensure fair working conditions, sham contracting is both unethical and illegal. Dental practices must be vigilant in understanding what sham contracting entails and take proactive measures to avoid it. This article explores the concept of sham contracting and provides insights into how dental practices can prevent its occurrence.

Sham Contracting: An Overview

Sham contracting occurs when an employer disguises an employment relationship as an independent contracting arrangement, often to reduce costs associated with employee entitlements such as minimum wage, superannuation, and leave benefits. The Fair Work Act 2009 (Cth) strictly prohibits sham contracting, deeming it an unlawful practice. This practice not only deprives workers of their rights and benefits, but also undermines fair competition within the dental industry.

Traditionally, a comprehensive assessment of formal and practical elements defined the distinction between employee and independent contractor relationships. The pivotal consideration was the control exerted over work methods as contractors typically exhibited greater control than employees would. While this aspect remains crucial in determining the nature of the relationship, there has been a notable shift in emphasis towards the content of written agreements used to engage individuals. Within the dental sector, particular attention must be paid to specific clauses within written agreements. These include:

• Work Hours: Are the working hours fixed or open to negotiation?
• Task Specifics: Is the individual engaged for particular tasks?
• Continuity: Is there a consistent expectation of work?
• Superannuation: Does the employer contribute to superannuation or does the individual make their own contributions?
• Tax Deductions: Does the employer deduct taxes from the individual's compensation or is tax on earnings paid by the individual?
• Leave Entitlements: Is the individual granted access to leave benefits?
• Payment Structure: Is the individual paid on a regular basis?
• Termination Conditions: What are the terms regarding termination?

Furthermore, the contractual agreement should explicitly outline whether the relationship is one of employer-employee or practice-independent contractor. This distinction involves discerning whether the contract is one "for service" or "of service." As the rights and obligations of employees and contractors differ significantly, correctly identifying individuals carries immense implications for their entitlements. These include aspects such as leave, minimum wages, and the ability to lodge unfair dismissal claims.

It is vital for dental practices to be vigilant about sham contracting and carefully assess management of independent contractors and employees. Sham contracting poses severe ethical and legal consequences, including substantial fines and penalties.

Preventing Sham Contracting in Dental Practices:

To avoid sham contracting, dental practices can consider implementing several measures:

Accurate Classification:

Thoroughly assess the nature of the relationship between the practice and the worker. Ensure that the classification as an employee or independent contractor is accurate and compliant with relevant labour laws and considers the pointers set out above.

Clear Contracts or Agreements:

Prepare comprehensive written agreements that accurately reflect the nature of the independent contractor relationship, or rather, employment contracts that confirm the employment relationship. Clearly outline the roles, responsibilities, payment terms, and expectations to minimise ambiguity. You may refer to employment contracts, independent contractor agreements or service and facility agreements as available on the ADA HR Hub.

Transparency:

Be transparent with workers about their employment or engagement status and rights. Provide them with written documentation explaining their classification and entitlements. Written independent contractor agreements and confidentiality agreements, or alternatively, employment contracts and policies can help support transparency.

Regular Audits:

Conduct regular internal audits of employment or independent contractor arrangements to ensure compliance and identify any potential issues early on. This should include review of existing relationships with workers to ensure they align with current legal requirements. Rectify any misclassifications.

Provide Training:

Educate management, HR personnel, and relevant senior staff about the distinctions between employees and independent contractors and the potential legal consequences of misclassification and/or mistreatment.

Seek Professional Advice:

When in doubt, seek advice from the ADA HR Advisory Service. Ensuring you stay updated with changes in employment legislation and regulations to ensure ongoing compliance is also recommended.

Sham contracting has serious legal and ethical implications for dental practices. It jeopardises workers' rights and creates an unfair competition within the industry. To prevent sham contracting, dental practice owners and managers must accurately classify engagement with employees or contractors, maintain transparency with workers, create clear and comprehensive contracts or independent contractor agreements, or seek further advice where uncertain. By adhering to these principles, dental practices can minimise the risk or engaging in and subsequent consequences associated with sham contracting.

Reprinted ADA HR Article

For more information on this article please call the ADA HR Advisory Service on 1300 232 462