Contractor or employee, and who decides which you are

How the test works

For a claim about pay, leave or unfair dismissal, the question is decided under the Fair Work Act. From 26 August 2024, businesses that are constitutionally covered have to look at the whole relationship: the real substance, practical reality and true nature of it, including the terms of the contract and how the work is performed in practice. The Fair Work Ombudsman lists the factors to weigh:

• how much control the business has over how, when and where the work is done
• who carries the financial risk, and who supplies the tools and equipment
• whether you can delegate or subcontract the work to someone else
• how your hours are set
• whether there is an expectation the work will continue

No single factor decides it. The Ombudsman says a worker who has an ABN or issues invoices is not automatically a contractor, and doing the same kind of work as an employee does not automatically make you one either. The table sets out the direction each factor points.

For example, take a hypothetical bookkeeper who works fixed hours in a client's office, on the client's software, answering to the client's manager. That looks like employment even with an ABN. A bookkeeper who runs their own practice, chooses their own methods and hours, and could send a colleague to do the work looks like a contractor. Trades such as electricians, plumbers and carpenters commonly work for themselves, as do graphic designers and bookkeepers, but the same job title can sit on either side of the line.

Which test applies to you

The whole of relationship test is used by what the Ombudsman calls constitutionally covered businesses. A business with Pty Ltd or Ltd in its name is usually one, and so is a business or organisation conducted principally in a territory. Sole traders, partnerships and other unincorporated businesses in New South Wales, South Australia, Queensland, Victoria and Tasmania are in the national system because those states referred their powers, and they use the older start of relationship test, which looks at what the parties agreed in the contract and any later variations. If the work changed but the contract was never varied, the change usually will not count. The older test is also used for work done before 26 August 2024.

A worker for a constitutionally covered business who earns above the contractor high income threshold can opt out of the newer test and use the older one, by notifying the business. From 1 July 2026 that threshold is $190,100.

The Ombudsman's list of state referred businesses does not include Western Australia. For a sole trader or partnership there, the position can depend on state law, so ask the Fair Work Ombudsman or a lawyer before assuming which test applies.

The tax and super answer can be different

The Australian Taxation Office asks a related but separate question. For tax and super it looks at the legal rights and obligations in the contract, and asks whether you serve in the business or provide services to it as part of your own business. The ATO says the label you and the business use in the contract is not relevant to how the relationship is characterised. A few rules are worth knowing:

• If you are paid mainly for your labour under a contract, you are an employee for super guarantee purposes, even with an ABN. That means more than half the contract's value is for your labour, you are paid for your personal labour and skills rather than a specified result, and the work cannot be delegated.
• If a company, trust or partnership is hired, the arrangement is a contracting one, and the people who do the work are not the client's employees. The ATO says this applies even if the contractor is a sole trader who does the work personally, when they were contracted to achieve a result.
• Apprentices, trainees, labourers and trades assistants are always treated as employees for tax and super.

The super guarantee rate is 12%. From 1 July 2026, a client who owes super for a contractor works it out on the contractor's qualifying earnings, which include all payments for their labour and any payments for overtime, and generally has to offer them a choice of fund within 28 days of the start date. Paying an extra amount on top of the invoice does not count as a super contribution.

So you can be a contractor for one purpose and an employee for another. If you are being paid as a contractor and you are unsure about super, the ATO's page on super for independent contractors sets out the questions to ask. If your work is also overtime or a salary arrangement, how overtime pay works for employees shows what you would be entitled to on the employee side.

What contractors do and do not get

Contractors do not have minimum pay rates or paid leave. Their pay is whatever the contract says, and they pay their own income tax, may need to register for GST and may need to arrange their own super. They do keep some Fair Work protections, including protection from adverse action and coercion.

Some contractors have extra rules. Regulated workers, such as employee-like workers on digital platforms (gig economy work) and regulated road transport contractors, can have minimum standards for pay and conditions.

A contractor who thinks a term in a services contract is unfair can apply to the Fair Work Commission if the contract was made on or after 26 August 2024, has a constitutional connection and the contractor earns below the high income threshold. Contractors whose contract pre-dates that, or who earn at least the threshold, can apply to the Federal Court or the Federal Circuit and Family Court under the Independent Contractors Act 2006. The Fair Work Ombudsman cannot enforce payment of unpaid invoices. The Australian Small Business and Family Enterprise Ombudsman can help with recovering them, and building and construction contractors may also have security of payment rights through their state or territory regulator.

Sham contracting

Sham contracting is telling a worker they are a contractor when they are really an employee. It is illegal to represent an employment arrangement as a contracting one unless the business can prove it reasonably believed the worker was a contractor. That defence was tightened on 27 February 2024, replacing a recklessness test with a reasonableness test. It is also illegal to knowingly say something false to persuade an employee to become a contractor doing the same or mostly the same work, or to dismiss or threaten to dismiss an employee in order to engage them as a contractor to do the same work.

Courts can penalise businesses and individuals. The Ombudsman lists maximum penalties for each contravention of $21,840 for individuals, $109,200 for businesses with fewer than 15 employees and $546,000 for larger businesses.

Sham arrangements are sometimes set up to avoid paying legal entitlements. If you think that has happened to you, the Fair Work Ombudsman can help with sham contracting and unpaid employee entitlements. It cannot tell you whether you are an employee or a contractor. That is a legal question, sometimes decided by a court, so consider getting legal advice.

Who works as a contractor

The Australian Bureau of Statistics counted 1.1 million independent contractors in August 2025, about 7.6% of employed people. Contracting is most common in administrative and support services (22% of people employed in that industry), construction (21%) and other services (14%), and among technicians and trades workers (15% of that occupation group). Many of these are real businesses, which is why the honest answer to the question is so often "it depends how the work is set up".

What to do if you are not sure

Start with the facts of your own arrangement, then get help with the legal answer.

• Read your contract, then compare it to how the work actually happens. If they do not match, the practical reality can carry weight under the whole of relationship test.
• Note who controls your hours, who supplies your tools, whether you could send a substitute and who bears the cost of mistakes.
• Ask whether you are being paid super. If you are paid mainly for your labour, the answer may be yes even with an ABN.
• Check whether you have been treated differently from the employees who do the same job, and whether you were moved from employee to contractor without a change in the work.
• Call the Fair Work Infoline on 13 13 94 about sham contracting or entitlements, or get legal advice on your status.

If you are being offered a contractor role, ask the same questions before you sign, and weigh a higher rate against the leave, notice and job security you would give up. The casual, part-time or full-time comparison shows what employee entitlements look like in practice, and casual employment rights covers the other arrangement that is often confused with contracting.