Whether someone working for you is an employee or a contractor affects their tax, their super, and your obligations as a business owner. Since 2024, the rules for working this out have actually become more layered, not less, so it is worth getting a clear picture.

1. Why does this matter so much?

Getting this wrong can mean back-paying super, wages, and entitlements, sometimes years after the work was done. It also affects whether you need to include someone in your TPAR, payroll tax, and workers compensation. It is one of those areas where a quick assumption early on can turn into a costly problem later.

2. The Fair Work test since August 2024

Since August 2024, Fair Work uses a “whole of relationship” test, looking at the real, practical nature of the working relationship rather than just what the contract says. This means a written contract labelling someone a contractor is not enough on its own if the actual working arrangement looks like employment.

3. The ATO’s test for tax and super

For tax and superannuation purposes, the ATO looks primarily at the terms of the contract itself. This means it is possible, in theory, for the same person to be treated differently for Fair Work purposes and for tax and super purposes, which is exactly why this area causes so much confusion.

4. Common mistakes tradies make with subcontractors

A common pattern we see is a subcontractor who works solely for one business, uses that business’s tools and vehicles, and follows set hours, but is still paid as a contractor with an ABN. The label on the invoice does not decide the classification. The actual working relationship does.

5. What happens if you get it wrong?

If a worker is later found to have been misclassified, you may owe back super, unpaid entitlements, and potentially penalties. Fair Work can also pursue significant penalties for cases involving deliberate underpayment. It is far cheaper to check this properly upfront than to fix it after the fact.

6. How to get it right from the start

Before engaging anyone new, look honestly at how the role will actually work day to day, not just what the contract says. If you are unsure about an existing arrangement, it is worth having it reviewed. We help Central Coast business owners work through this as part of our payroll and compliance support – get in touch if you would like a second opinion.