Employee or contractor: how the law decides

What changed

From 26 August 2024, most businesses need to consider how the working relationship operates in practice, as well as what is written in the contract.

That means looking at the whole relationship, including the written contract and how the work is actually done. The Fair Work Ombudsman lists factors such as control over the work, financial risk, who supplies tools and equipment, the ability to delegate or subcontract, hours of work and the expectation that work will continue. No single factor decides it. Having an ABN or issuing invoices does not make someone a contractor.

Workers earning above the contractor high income threshold may be able to opt out of the whole-of-relationship test by giving the business written notice. The start of relationship test then applies instead. The threshold is indexed each 1 July.

For tax and super the ATO applies its own tests. Someone treated as a contractor under Fair Work rules may not necessarily be treated the same way for tax or super. For tax, the ATO looks closely at the rights and obligations set out in the contract and whether the person is working in your business or running their own.
Some contractors may still be entitled to super if they are hired mainly for their own labour and skills.
This can apply when the contractor is hired mainly for their own labour and skills, must do the work themselves and is not being paid mainly to deliver a specific result.
An ABN makes no difference. The same worker can land differently under each law.

Who it affects

• Businesses engaging contractors directly, especially on long or open-ended arrangements that look like ongoing roles.
• Recruitment agencies placing ABN and Pty Ltd contractors with clients, where the day-to-day reality may not match the contract.
• Contractors, whose rights to minimum pay, leave and super depend on how the relationship works in practice.

What to do

• Compare the written contract with how the work is actually done: who controls the hours, methods and location.
• Ask who carries the financial risk, who supplies tools and equipment, and whether the worker can genuinely delegate or subcontract.
• Check whether each contractor is paid mainly for their own labour. If so, super may be payable even though they have an ABN.
• If a contractor earns above the contractor high income threshold, check whether they have given an opt-out notice.
• Review the arrangement if the hours, pay or way the person works changes.