The 22 per cent discount for breaking the law

Trucking operators say rivals using sham contracting are beating them on price by up to 30 per cent. The Fair Work Ombudsman has 24 active cases, and the arithmetic applies well beyond freight.

Queensland Trucking Association chief executive Gary Mahon says compliant operators are losing contracts to competitors allegedly avoiding employment obligations, and that the gap on price runs to 25 and 30 per cent. His association estimates sham contracting cuts labour costs by around 22 per cent. Typical margins in the industry are 5 to 6 per cent.

Those two numbers explain why this is not a story about bad apples. A competitor operating 22 points below your labour cost in an industry earning 6 points of margin is not undercutting you, they are operating in a different market. Mahon describes the direction as a race to the bottom, and says an operator rings him about it most days.

Sham contracting occurs when a business misrepresents what is in substance an employment relationship as independent contracting, which sheds superannuation, paid leave and workers' compensation. Mahon says some trucking companies engage drivers through Australian Business Numbers (ABNs) while those drivers work, in practice, as employees. 

His characterisation is that the employer is using tax law as a veil for employment law. The association estimates more than 40,000 of Australia's 600,000 transport and logistics workers are engaged through ABNs.

The pressure does not originate only with operators. Mahon says clients have been reported pushing for drivers to be put on ABNs because they want cheaper freight rates, which moves the question up the supply chain to the businesses buying the service.

The Fair Work Ombudsman (FWO) confirmed it had 24 active cases involving sham contracting and misclassification as at 7 October, alongside five investigations into road transport supply chains. It has issued 39 infringement notices over unlawful independent contractor advertisements, 25 of them involving road transport businesses, and 13 compliance notices on misclassification that recovered more than $94,000 for 17 workers. 

A further 99 road transport duty holders have received formal correspondence setting out their due diligence obligations. Courts can impose penalties of up to $99,000 per contravention on a business with fewer than 15 employees, and for larger businesses the greater of $495,000 or three times the underpayment.

Mahon's complaint is that none of this adds up to visible enforcement. The drivers themselves often do not object initially, because the hourly rate looks better, and the gap only becomes apparent when something goes wrong. On workers' compensation, his line is that everything is fine until it is not.

If you engage anyone on an ABN, the test is not what the contract says. It is who controls the hours, who supplies the equipment, whether the person can delegate the work and whether they can realistically work for anyone else. Run that test on every contractor you use and write down the answer, because the FWO's current activity shows the cheapest place to get caught is your own job advertisement. Businesses buying services should run it too: the regulator is looking at supply chains, not just employers, and a freight rate 25 per cent below the market is evidence of something. Expect the first substantial court penalties in road transport within twelve months, and expect them to be used as the template for construction and cleaning immediately afterwards.