Independent Contractors
An independent contractor runs their own business and provides services to clients under a contract for services. Employees work under a contract of employment. Since 26 August 2024, the Fair Work Act looks at the real substance and practical reality of the whole relationship, not just what the contract says.
Legislation: Fair Work Act 2009 (Cth) ss 15AA, 15AB, 357 to 359; Independent Contractors Act 2006 (Cth) | Category: Employment Types
What Is an Independent Contractor?
Independent contractors provide services as a business in their own right. They usually control how they do the work, carry commercial risk, can delegate or subcontract, and work for multiple clients.
Contractors don’t get most employee entitlements. That means no minimum wage under an award, no paid leave, and no unfair dismissal protection. Businesses that engage them still have obligations, including superannuation for some contractors, WHS duties and the general protections.
How Do You Tell the Difference?
Section 15AA of the Fair Work Act requires the whole relationship to be assessed. That includes how it works in practice, not just the written contract. A contract that says “contractor” won’t hold up if the day-to-day reality looks like employment.
The key indicators are:
| Points to employee | Points to contractor |
|---|---|
| Business controls how, when and where work is done | Worker controls how the work is done |
| Paid by the hour or on a wage | Paid for a result or a quoted job |
| Must do the work personally | Can delegate or subcontract |
| Integrated into the business, wears the uniform, appears on the org chart | Operates their own business with their own brand |
| Business provides tools and equipment | Worker supplies their own tools and bears the cost |
| Works only or mainly for one business | Works for multiple clients |
| No real commercial risk | Bears risk of loss and responsibility for fixing defects |
No single factor decides it. Courts weigh them all together.
High-income contractor opt-out
Contractors earning above the contractor high income threshold can give written notice to opt out of s 15AA. The contract terms then carry more weight in deciding the relationship. The threshold is indexed annually, so check the current figure with the Fair Work Commission.
Key Compliance Points
- Sham contracting is a civil penalty offence. It includes misrepresenting employment as contracting and dismissing an employee to re-engage them as a contractor doing the same work. Making false statements to persuade a worker to become a contractor is also covered.
- The defence got harder in 2024. An employer now has to show it reasonably believed the arrangement was a genuine contract for services. It used to be enough to show it wasn’t reckless.
- Super applies to many contractors. Contractors paid wholly or mainly for their labour are treated as employees for super guarantee purposes, even with an ABN. Under Payday Super, their super must reach their fund within 7 business days of each payment.
- Different tests apply for different purposes. Tax, super, payroll tax and workers compensation each have their own rules. A worker can be a contractor for one purpose and an employee for another.
- Unfair contract terms. Contractors earning under the contractor high income threshold can ask the Fair Work Commission to review unfair terms in their services contract.
- Minimum standards orders. The FWC can set minimum standards for employee-like workers on digital labour platforms and for road transport contractors. Platform workers are also protected against unfair deactivation.
- WHS duties still apply. Contractors are “workers” under WHS laws, so you owe them the same safety duty as your employees.
- General protections cover contractors too. You can’t take adverse action against a contractor for exercising a workplace right.
Frequently Asked Questions
Does an ABN make someone a contractor?
No. An ABN tells you nothing about the relationship. What counts is how the work is actually done, who controls it and whether the worker runs a genuine business.
Do I have to pay super for contractors?
Yes, if they’re paid wholly or mainly for their labour and not for a result. This usually covers tradies and service contractors paid by the hour. It generally doesn’t cover a business contracted to deliver a finished job using its own staff or equipment.
What happens if I get it wrong?
If a contractor is actually an employee, you may owe back pay under the relevant award, along with leave, super and the super guarantee charge, PAYG withholding penalties and payroll tax. You can also face civil penalties for sham contracting. Directors and managers involved can be personally liable.
Can a contractor make an unfair dismissal claim?
No. Only employees can bring an unfair dismissal claim. But a contractor can argue they were really an employee, and then pursue unfair dismissal, underpayment and other claims. Contractors can also bring general protections claims.
Is it sham contracting to ask an employee to become a contractor?
It can be. Dismissing or threatening to dismiss an employee so they’ll come back as a contractor for the same work is prohibited. So is misleading them about why the change is needed.
