Getting this wrong is one of the more expensive mistakes a business can make. Misclassify someone as a contractor when the law says they are an employee, and you can be liable for unpaid entitlements, superannuation, interest and penalties, sometimes years after the person has gone.
The difficulty is that there is no single test. There are several, they belong to different pieces of legislation, and they do not always give the same answer about the same person.
What changed in August 2024
In 2022 the High Court decided two cases, Personnel Contracting and Jamsek, which made the written contract close to decisive. If the contract said contractor and the parties worked to it, that was largely the end of the matter.
That is no longer the position for Fair Work purposes. The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 inserted section 15AA into the Fair Work Act, and it commenced on 26 August 2024. It directs you to the “real substance, practical reality and true nature” of the relationship.
In plain terms, the contract is still relevant, but how the arrangement actually runs day to day now carries real weight again. A contract that calls someone a contractor will not save an arrangement that looks like employment in practice.
Anything written about this before late 2024 is out of date. That includes a lot of what is still online.
What the whole-of-relationship test looks at
There is no checklist where four ticks makes someone a contractor. It is an overall assessment, and these are the factors that carry weight:
- Control. Who decides how, when and where the work is done? A genuine contractor decides how to do the job.
- Commercial risk. Who wears it if the work has to be redone? A contractor who has to fix defects at their own cost is carrying real risk.
- Delegation. Can they send someone else to do the work? A genuine right to delegate points strongly to contracting.
- Tools and equipment. Who supplies them, and who pays for the vehicle, the insurance and the consumables?
- Whose business is it. Is the person building their own business, with other clients and their own reputation, or working in yours?
- How they are paid. Paid for a result, or paid for time on site in a way that resembles a wage?
No single factor decides it. Someone can supply their own tools and still be an employee.
The trap: there is more than one test
This is the part that catches businesses out. The Fair Work test is not the tax test, and neither is the superannuation test.
The same worker can be a contractor for one purpose and treated as an employee for another. In particular, superannuation can still be payable to a genuine contractor where the contract is mainly for their labour. Businesses that have correctly classified someone as a contractor for tax still get caught on super.
Workers compensation adds another layer, and it varies by state.
So “we checked and they are a contractor” is an incomplete answer unless you know which test was applied and for what purpose.
Things that do not settle it
- Having an ABN. Very common belief, and wrong. An ABN does not make someone a contractor.
- Issuing invoices. Equally not decisive.
- The word “contractor” in the agreement. Relevant, not conclusive.
- The worker preferring it. You cannot contract out of the law by agreement.
What actually helps
Put the arrangement in writing, and then make sure the arrangement matches what you wrote. The written terms still matter. What has changed is that they no longer protect you if the day-to-day reality contradicts them.
Be specific about scope and outcome rather than hours. Keep the record of what was agreed, what changed and who signed it off, so that if the relationship is ever examined you can show what it actually was rather than reconstructing it from memory.
On Workforce Marketplace, businesses engage other businesses. Scope, quotes, variations and sign-off stay attached to the job record, which is the evidence you want if a classification question ever comes up.
This article is general information, not legal advice. Classification is fact-specific and the tests differ between Fair Work, tax, superannuation and state workers compensation law. Check the current position at fairwork.gov.au and ato.gov.au, and get advice on your own arrangements before relying on anything here.
