Contractor or employee: the 2024 test

The Fair Work Ombudsman notes that the two tests involve many of the same considerations, so moving between them often won’t change the answer (FWO: start of relationship test). The difference shows up where the paperwork says contractor but day-to-day work looks like employment.

Doing the same kind of work as your employees doesn’t automatically make a worker an employee, and doing contractor-style work doesn’t automatically make them a contractor. See the whole of relationship test page.

• The notice must state that the worker believes their earnings under the relationship are above the threshold when the notice is given.
• The business can tell the worker in writing that they may opt out, but only if it considers they may be an employee under the whole of relationship test and they earn above the threshold.
• A worker can give only one opt out notice per relationship and can withdraw it in writing at any time; the whole of relationship test then applies again.

The rules are in ss 15AB–15AD of the Act and regulation 1.08AA (FWO: opting out).

The Fair Work Ombudsman lists maximum penalties per contravention of $21,840 for individuals, $109,200 for businesses with fewer than 15 employees and $546,000 for larger businesses (FWO: sham contracting). The defence turns on whether your belief that the worker was a contractor was reasonable, so record why you reached it.

Following 2022 High Court decisions, the ATO decides employee or contractor status for tax by asking whether the worker serves in your business, judged only from the terms of the contract. Conduct is not relevant unless it varies those terms (ATO). That is narrower than the Fair Work Act’s whole of relationship test, which also looks at how the work is done in practice.

For super, the ATO says you must contribute for an independent contractor if the contract is mainly for their labour (more than half its dollar value), they are paid for their personal labour and skills rather than a result, and they can’t delegate the work. This comes from the extended meaning of employee in s 12 of the Superannuation Guarantee (Administration) Act 1992. From 1 July 2026, super is calculated on all labour payments, including overtime, but not materials, equipment or GST (ATO: super for contractors).

In NSW, for example, the contractor is deemed to be an employee and the labour component of the payments is liable unless one of 7 exemptions applies, such as services needed for 180 days or less in a financial year, or provided for 90 days or less. Revenue NSW warns that an ABN or a company structure does not by itself take a worker outside the provisions (Revenue NSW). Each state and territory has its own Act, so check the rules where the work is done, and estimate liability with the payroll tax calculator. Thresholds and rates for every state are in payroll tax for employers.

1. Confirm whether you are a constitutionally covered or state referred business.
2. Write down who controls the work, who carries financial risk, who supplies tools, whether the worker can delegate, how hours are set and whether the work is task-based.
3. Check whether the contract is mainly for labour; if so, budget for super guarantee.
4. Check the payroll tax contractor exemptions in your state and keep the records they require.
5. Review the arrangement when the work changes. Under s 15AA, practice can override the contract.
6. If the honest answer is employee, offer employment and compare the real cost with the hiring cost calculator.