Australian Migrant Workers Face Systemic Underpayment Through Sham Contracting

Key facts

The findings published by the Migrant Justice Institute represent one of the most comprehensive empirical assessments of temporary migrant labor conditions in Australia. Conducting the research in 2024 across six languages, investigators gathered data from 9,963 foreign-born workers employed across various state and territory jurisdictions. The results demonstrate that systemic wage underpayment is pervasive across low-wage sectors, including hospitality, agriculture, construction, commercial cleaning, and retail.

According to reporting by Unconventional Economist, the report details how businesses increasingly rely on sham contracting to obscure standard employment relationships. Under Australian workplace law, individuals working under the direction, control, and set schedules of a business are classified as employees. However, many employers instruct foreign job seekers to obtain an Australian Business Number (ABN) through the federal taxation portal before starting work.

By treating these workers as self-employed subcontractors rather than staff, businesses systematically bypass the Fair Work Act 2009. The survey found that 65 percent of participants were subjected to pay rates lower than legal awards. In many cases, obtaining an ABN is made a non-negotiable prerequisite for getting hired, transferring operating expenses, insurance liabilities, and administrative burdens onto temporary migrants who may lack familiarization with Australian tax and labor laws.

Why it matters

The expansion of sham contracting and systemic underpayment among migrant workers carries significant consequences for Australia's broader labor market, public finance system, and social equity. When a major segment of the workforce is paid below legally binding minimums, it creates artificial downward pressure on wage growth for all entry-level and low-skilled workers across the nation. Compliant businesses that pay award wages, cover public holidays, and provide mandatory superannuation face severe competitive disadvantages against non-compliant operators who use sham contracting to reduce labor overheads.

From a fiscal perspective, sham contracting undermines the tax base and social safety net. Independent contractors operating under ABNs manage their own income tax payments, which often leads to reduced or delayed tax collection compared to Pay-As-You-Go withholding systems managed by standard employers. Additionally, the widespread failure to pay compulsory employer superannuation leaves temporary migrants without accumulated retirement capital, compounding long-term economic vulnerability for those who eventually transition to permanent residency.

For migrant workers themselves, legal misclassification leads to financial instability, severe working stress, and an inability to access basic workplace protections. Temporary visa holders, including international students and post-study work visa recipients, often bear high tuition costs and elevated living expenses in Australian cities. When forced into contractor status, they lose entitlement to workers' compensation cover, paid personal leave, and penalty rates for night, weekend, or overtime shifts, shifting commercial risk directly onto individual workers.

Australia's economic framework relies heavily on temporary foreign labor to fill short-term workforce demands in regional and metropolitan areas. International students, working holiday visa holders, and temporary skill shortage visa holders make up a significant proportion of employees in service, agricultural, and logistics sectors. However, structural features of Australia's immigration and workplace relations systems have historically created imbalances of power between employers and temporary visa holders.

A central driver of migrant vulnerability has been visa condition enforcement. Historically, temporary visa holders who exceeded statutory work-hour restrictions—such as former fortnightly caps on international student employment—faced potential visa cancellation and deportation under the Migration Act 1958. Unscrupulous employers frequently used the threat of reporting visa technical breaches to authorities to enforce compliance, silence grievances, and maintain substandard wage rates.

To address these vulnerabilities, statutory frameworks were instituted under the Fair Work Act 2009. Section 357 of the act explicitly prohibits sham contracting, making it illegal for an employer to represent an employment relationship as an independent contracting arrangement. Despite these provisions, enforcement by the Fair Work Ombudsman (FWO) has struggled to keep pace with modern labor practices. The growth of the gig economy and subcontracting networks has enabled widespread misclassification, while automated registration processes for Australian Business Numbers allow individuals to acquire contractor status without prior verification of their actual employment relationship.

Reaction

The findings from the Migrant Justice Institute have intensified calls from trade unions, advocacy organizations, and legal service centers for immediate government intervention and stronger enforcement mechanisms. Peak labor bodies, such as the Australian Council of Trade Unions (ACTU), argue that sham contracting undermines the national award framework and robs workers of standard statutory protections.

Migrant advocacy groups emphasize that regulatory authorities must expand safeguards for foreign workers who report workplace violations. Although the Fair Work Ombudsman and the Department of Home Affairs have introduced assurance protocols intended to protect reporting workers from visa cancellation, community advocates contend that fear of immigration consequences remains a major deterrent to reporting wage theft.

Industry associations acknowledge the necessity of punishing bad actors but emphasize that legitimate independent contracting arrangements remain a vital component of a flexible economy. Employer groups advocate for targeted enforcement focused on intentional non-compliance, cautioning against restrictive legislation that could hinder genuine self-employment or small business operation.

What we don't know yet

Despite the extensive data collected by the Migrant Justice Institute, key parameters regarding the full economic scope of sham contracting remain unquantified. The survey does not provide a definitive dollar estimate for the total cumulative wage underpayments across the entire foreign workforce in Australia, leaving the total fiscal scale of lost earnings open to estimation.

Furthermore, it remains unclear which specific geographic regions or sub-industries exhibit the highest rates of forced ABN usage among migrants. Gaps also remain regarding how effective recent federal legislative reforms—including newly enacted statutory penalties for intentional wage theft—will be in deterring indirect misclassification schemes that operate through multi-tiered labor-hire agencies.

Finally, there is limited data on whether regulatory crackdowns on sham contracting will prompt non-compliant employers to transition workers onto legitimate payroll systems or instead drive vulnerable workers further into informal, unrecorded cash-in-hand arrangements.

What to watch

Key developments in the coming months will reveal how Australian authorities and lawmakers address the issues raised in the report. Observers will watch for regulatory actions by the Fair Work Ombudsman, including targeted audits and legal enforcement proceedings against companies utilizing misclassified contractor labor.

Policy watchers will also monitor potential joint initiatives between the Australian Taxation Office (ATO) and workplace regulators to scrutinize the rapid issuance of Australian Business Numbers to temporary visa holders. Any administrative changes to the ABN application portal could serve as a major mechanism for curtailing automated sham contracting setups.

Additionally, upcoming legislative reviews and parliamentary debates regarding workplace legislation will be critical. Stakeholders will watch whether the federal government introduces tighter statutory definitions of contractor status or expands protections under visa rules to further shield migrant whistleblowers from immigration penalties when reporting sham contracting arrangements.

This report is based on coverage originally published by Unconventional Economist.