Home' ALGY : ALGY Edition 23 2016 Contents THE AUSTRALIAN LOCAL GOVERNMENT YEARBOOK EDITION 23 • 235
Many private security providers use direct
employees to fulfill their contractual
responsibilities. Some will have few employees (if
any), and will use subcontractors.
Subcontracting may be a genuine business decision to
ensure that specific professional skills are brought to the job;
however, it can also be a way of unlawfully avoiding the costs
associated with having direct employees.
Allowing private security providers to subcontract to ABN
holders can lead to problems of sham subcontracting and
What is sham subcontracting?
Sham contracting is when an employer attempts to conceal
an employment relationship by calling it an independent
contracting arrangement. This is usually to avoid paying
legal minimum rates of pay, workers' compensation,
insurances, tax and entitlements, such as annual leave and
sick leave. Sham contracting arrangements are unlawful
under the Fair Work Act 2009.
What does this mean for local government?
Decision-makers must ensure that their chosen security provider
has the right staff to be able to meet contractual responsibilities,
and that those staff are being provided with wages and
conditions in compliance with a lawful industrial instrument.
If not, the decision-maker may be exposed to an action
under s550 of the Fair Work Act 2009 (accessorial liability).
Accessorial liability arises when an employer is found to be
non-compliant with workplace laws, and the client was aware
or should reasonably have been aware that the contract price
would not have allowed for employees to be provided with
minimum wages and conditions.
Where private security providers elect to use subcontractors,
local government may still be exposed to accessorial liability,
particularly if the arrangement between the security provider
and the subcontractor is a 'sham arrangement'.
Very often, these arrangements are between the security
provider and an individual 'ABN holder', and are designed to
allow the security provider an unfair competitive advantage
through the avoidance of costs associated with having
Part of the solution is for end users, including government
at all levels, to focus on allocating contracts that allow private
security contractors to provide a sustainable professional service,
and to offer pay and conditions commensurate with a legal
What's the difference between a contractor and an
An 'employee' is a person employed to provide his or her
personal service to the employer, whether indefinitely or for a
defined period of time. The employer will determine where work
is done, what work is done, and how work is done.
A contractor is engaged under a 'contract for services' to
achieve a defined result or agreed outcomes. They are not under
the direction and control of the employer. Contractors may not
be required to perform the work personally.
It is important to remember that it doesn't matter what the
parties agree, or what they want to call the arrangement -- what
it really is will be determined by what actually happens, how the
work is performed, and who is in charge. Courts and tribunals
have developed a range of tests to assist in determining if it is
an employer/employee relationship or a principal contractor/
Failure to correctly classify a contractor may expose
an employer to major legal costs if the individual status
as a contractor is challenged at a later date. The Fair Work
Ombudsman calls this 'misclassification', and has a large
team investigating and prosecuting businesses involved in
misclassification. There may be back-payments if the challenge
is successful. There can be heavy fines, both corporate and
individual. They call this 'accessorial liability'.
What's ASIAL's role in this?
As the peak body for security professionals, ASIAL is working
with the FWO on the Local Government Procurement Initiative.
We aim to work with all government agencies to develop fair
and transparent guidelines that will produce certainty and
confidence throughout the supply chain, resulting in a more
professional private security industry.
We are also keen to educate private-sector users of private
security that using price as the benchmark for choosing a
security provider lacks good corporate governance. Businesses
can be exposed to inferior service, poorly trained and equipped
security staff, uninsured work, and prosecution for non-
compliance under s550 of the Fair Work Act 2009, which can be
financially expensive, as well as ruinous to reputations.
FWO's audit campaign is a timely reminder for users of
private security services to make sure that the arrangements
they have in place are compliant -- if you don't, you may be in for
a nasty surprise.
The content of this article is intended to provide a general guide to the subject matter.
Specialist advice should be sought about your specific circumstances.
ABOUT THE AUTHOR
Chris Delaney is ASIAL's Industrial Relations Advisor. Chris is
one of the security industry's most highly regarded industrial
and employee relations advisors, with 40 years' experience.
For information on ASIAL, visit www.asial.com.au.
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