Employee or Contractor? The Risks of Getting It Wrong

Why Classification Matters

Classification determines which body of obligations applies to the engagement:

• Wages and conditions — the national minimum wage, and modern award or enterprise agreement terms including overtime, penalty rates, allowances and loadings;
• Leave — annual leave, personal and carer's leave, compassionate and parental leave, public holidays, and long service leave under state legislation;
• Tax — PAYG withholding, and fringe benefits tax where benefits are provided;
• Superannuation — the superannuation guarantee, including the extended definition of employee in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth);
• Payroll tax — state and territory payroll tax on wages and on contractor payments caught by the relevant contract provisions;
• Workers compensation — rateable remuneration, premium and claims exposure under the scheme in each state or territory;
• Work health and safety — duties are owed to workers in a broad sense, so both arrangements attract duties, although the structure differs;
• Statutory claims — unfair dismissal and general protections protections are principally employee regimes, with separate and narrower provisions for regulated workers; and
• Liability and insurance — vicarious liability for employees, and the scope of public liability and professional indemnity cover.

Classification problems rarely surface in isolation. One dispute commonly produces parallel enquiries from the worker, the Fair Work Ombudsman, the Australian Taxation Office, the revenue office and the workers compensation insurer, each applying its own test to the same facts.

The Fair Work Act Whole-of-Relationship Test

For Fair Work Act purposes — minimum wages, award and agreement entitlements, leave, unfair dismissal, general protections and sham contracting — section 15AA of the Fair Work Act 2009 (Cth), inserted by the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth), has applied since 26 August 2024. It requires the ordinary meanings of "employee" and "employer" to be determined by reference to the real substance, practical reality and true nature of the relationship, having regard to the totality of the relationship. That includes the terms of the contract and how the contract is performed in practice.

Two points are worth emphasising because they are often misstated. First, the contract still matters a great deal: section 15AA requires the contractual rights and obligations to be considered, and a contract that accurately records a genuine commercial arrangement is a substantial part of the answer. What has changed is that it is no longer, by itself, the end of the enquiry. Second, section 15AA operates within the Fair Work Act's constitutional reach and governs the position for the relationship from 26 August 2024. Work performed before that date continues to be assessed under the approach that applied at the time, and section 15AA does not apply where a valid opt-out notice is in effect.

Section 15AA also does not govern classification under any other statute. Nothing in it changes the test under the income tax and PAYG withholding provisions, the superannuation guarantee legislation, state payroll tax Acts or state workers compensation Acts. Those regimes are addressed separately below and should not be assumed to follow the Fair Work Act result.

Where the Contract-Focused Approach Applies

In February 2022 the High Court decided CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2. Those decisions held that where the parties have committed their relationship to a comprehensive written contract, the characterisation exercise is directed to the rights and obligations created by that contract, rather than to a wide-ranging review of how the parties later behaved. The familiar indicia — control, delegation, tools, integration, payment structure, risk — were not abolished; they are applied to the contractual rights.

It is a mistake to compress those decisions into the proposition that the written contract always wins. On their own terms they do not apply, or do not apply in that way, where:

• the contract is a sham, in the sense that it does not record the parties' real agreement;
• the terms have been varied by later agreement or by conduct;
• the written document is incomplete, so that the parties' rights are found partly elsewhere, or a term has been waived or is otherwise ineffective; or
• a statute deems the relationship, as section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) does for superannuation purposes.

Both decisions remain important authority on the common law characterisation of a working relationship, which is what matters for income tax and PAYG withholding purposes, for Fair Work Act questions about the position before 26 August 2024, for a validly opted-out worker, and as background to the statutory tests in the payroll tax and workers compensation schemes. Which test governs a question therefore depends on which regime the question arises under.

Opting Out: High-Income Contractors

Sections 15AB to 15AD of the Fair Work Act allow an individual whose earnings for the work exceed the contractor high income threshold to elect that section 15AA does not apply. The threshold is set under the Fair Work Regulations and adjusted on 1 July each year. For the year from 1 July 2026 to 30 June 2027 the Fair Work Commission and the Fair Work Ombudsman publish it as $190,100; because it is indexed annually, the current figure should always be confirmed on the Fair Work Ombudsman's website before it is relied on. The mechanics are:

• the individual may give the engaging party a written opt out notice stating that they believe their earnings for work under the relationship exceed the threshold;
• the engaging party may itself give the individual written notice that they may opt out, but only where it considers the individual's earnings exceed the threshold; where such a notice is given, the individual has 21 days to give an opt out notice, and otherwise may give one at any time;
• while an opt out notice is in effect, status is assessed under the start of relationship test rather than section 15AA;
• the individual may revoke the notice by written revocation notice, after which section 15AA applies again; section 15AD(4) permits only one revocation notice for a particular relationship; and
• opting out changes which test applies. It does not warrant that the individual is a contractor, and it has no effect on the separate tax, superannuation, payroll tax and workers compensation questions.

The Indicia, Read in Context

The multi-factor indicia remain the working tools of classification under every test. What matters is how they are used: each is evidence about the nature of the relationship, and none is a rule.

Control, and the difference from coordination

The relevant question is whether the business has a contractual right to control the manner in which the work is performed. That is not the same as the practical coordination every engagement involves. Requiring a contractor to attend a site at an agreed time, to comply with safety rules and inductions, to meet a deadline, to use a client's system for access or billing, or to attend a project meeting does not by itself establish a right of control over the method of performance. Setting the worker's hours, supervising how the task is carried out, directing daily priorities, and applying internal performance management processes generally does.

Delegation: genuine and exercisable, or theoretical

A right to delegate or subcontract is significant precisely because an employee's obligation is to serve personally. In JMC the Full Court treated a genuine contractual right to have the work performed by someone else as telling strongly against the contract being one for the labour of the individual, even though its exercise required the principal's consent. But the right must be real. A clause that exists on paper while both parties understand that only this individual will ever perform the work — because consent would never be given, because the work is not capable of delegation, or because the business selects and vets every person who attends — carries little weight.

Tools, equipment and expense

Where the worker supplies substantial plant, equipment, vehicles, software and consumables at their own cost, and bears the cost of maintaining and insuring them, that points towards a contracting relationship. Where the business supplies the laptop, licences, phone, vehicle, uniform and workspace, that points the other way. The enquiry is about the overall economic burden, not the presence of a single item.

Integration and business presence

Integration into the organisation — a place in the reporting line, an internal title, attendance at staff meetings, presentation to clients as part of the team — points towards employment. An independent business presence, with its own clients, marketing, insurances and goodwill, points the other way. Working for one principal is not conclusive either way: genuine contractors sometimes have a single major client, and employees sometimes have other work.

Payment structure

Payment for a result, on quotation or at a fixed price for defined deliverables, is consistent with contracting, and payment by time for personal attendance is consistent with employment. Neither is determinative. Many genuine contractors charge hourly, and some employees are paid on a piece or commission basis. What tends to matter more is whether the worker can influence their return through pricing, efficiency and the engagement of others, or is simply remunerated for time made available.

Risk, profit and goodwill

A person genuinely carrying on their own business ordinarily bears the risk of loss, is responsible for rectifying defective work, carries their own insurances, and builds goodwill in something that could be sold. The absence of any real risk or upside is a significant indicator that the worker is not in business for themselves.

Companies, trusts and other intermediaries

Interposing an entity between the worker and the business changes the analysis in some regimes and not others. Contracting with a company, trust or partnership is directly relevant to section 12(3) of the superannuation legislation, which is concerned with a contract for the labour of an individual. It does not automatically answer the Fair Work Act question, and payroll tax relevant contract provisions and workers compensation deeming provisions each address intermediaries in their own terms. Incorporation arranged at the business's insistence, where nothing else about the arrangement changes, tends to attract scrutiny rather than deflect it.

PAYG Withholding and Income Tax

For income tax purposes the Australian Taxation Office applies the common law test, with its current view set out in Taxation Ruling TR 2023/4. Section 15AA of the Fair Work Act does not determine common law status for tax purposes.

PAYG withholding under Part 2-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) operates on statutory withholding bases rather than on a single contractor category. The most relevant are withholding from salary, wages and similar payments to an employee; withholding under a voluntary agreement with a contractor who has an ABN; withholding under a labour hire arrangement; and no-ABN withholding from a payment to a supplier who has not quoted an ABN.

It follows that misclassification does not produce a uniform PAYG consequence. Whether there is a shortfall, and what penalties and general interest charge attach to it, depends on which basis applied, whether an ABN was quoted, what the payee has already returned and paid, and the business's conduct and disclosure. Voluntary disclosure of a historical shortfall ordinarily improves the outcome, and an assessment of the position should be made before any disclosure is lodged.

Superannuation: The Position From 1 July 2026

Superannuation is the largest single source of reclassification exposure in many businesses, and the rules changed materially on 1 July 2026. The Treasury Laws Amendment (Payday Superannuation) Act 2025 (Cth) and the Superannuation Guarantee Charge Amendment Act 2025 (Cth), together with supporting regulations, replaced quarterly superannuation guarantee timing with payday timing.

• Rate. The superannuation guarantee rate is 12%, and the Payday Super changes did not alter it.
• Timing. Contributions calculated on qualifying earnings must generally be received by the employee's fund, with the information needed to allocate them, within 7 business days of the day those earnings are paid.
• Longer periods. The Commissioner's Law Companion Ruling LCR 2026/2 identifies four situations in which a longer period is allowed: a new worker engagement or a change of the employee's fund; certain out-of-cycle payments of qualifying earnings; an exceptional circumstances determination; and the consequential extension that applies to later paydays falling within an earlier extended period.
• The charge. Where a contribution is missed, late or misdirected, the Commissioner assesses the superannuation guarantee charge rather than the employer lodging a quarterly statement. The charge comprises the individual final superannuation guarantee shortfall, notional earnings, and an administrative uplift amount that begins at 60% of the shortfall and notional earnings and may be reduced for compliance history and voluntary disclosure, plus an additional amount where the choice of fund requirements were not met.
• Late contributions. Contributions made late still reduce the shortfall on which the charge is calculated, so paying what can be paid promptly remains worthwhile. The former late payment offset against future periods is not available under the new regime.
• Deductibility. The superannuation guarantee charge is now deductible. Section 26-95 of the Income Tax Assessment Act 1997 (Cth), which specifically denied any deduction for the charge, was repealed by the Treasury Laws Amendment (Payday Superannuation) Act 2025 (Cth) with effect from 1 July 2026, and no replacement denial was enacted. For liabilities arising under the Payday Super regime from that date the charge is therefore deductible under the ordinary income tax rules to the extent those rules apply, and that treatment covers the charge as assessed — the individual final superannuation guarantee shortfall, notional earnings, the administrative uplift amount and the additional amount for a choice of fund failure. Two amounts sit outside that result. General interest charge accruing on an unpaid assessment is not deductible, because deductions for ATO interest charges incurred on or after 1 July 2025 have been denied by separate legislation; and administrative penalties are denied by section 26-5. Unusual facts — a charge with no connection to assessable income, for example — still warrant checking.
• Transition. Quarters ending before 1 July 2026 continue to be dealt with under the former rules, including the quarterly due date of 28 July 2026 for the June 2026 quarter. LCR 2026/1 sets out the application and transitional provisions, and the Commissioner has published a first-year compliance approach in PCG 2026/1.
• Directors. Director penalty exposure under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth) continues, now keyed to the new payday-based due days rather than quarterly statement dates. It is a real exposure, but it arises through a defined statutory process that includes notice and a 21-day period before recovery, and whether a penalty can be remitted turns on what has been disclosed to the Commissioner.

For classification purposes the significance is one of pace. If a worker treated as a contractor is in substance an employee, or is deemed one under section 12(3), the exposure now accrues payday by payday rather than quarter by quarter, and the charge is assessed by the Commissioner rather than self-reported.

Section 12(3): The Extended Definition

Section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) provides that a person who works under a contract that is wholly or principally for the labour of the person is an employee of the other party to the contract. It was not amended by the Payday Super legislation. It is narrower than it is often assumed to be, and a contract is not caught simply because it involves someone performing work.

• The contract is assessed as a whole, on its proper construction, to ask whether it is for the labour of the individual.
• A contract for the production of a result — a completed job, a deliverable, an outcome the contractor is paid for irrespective of the labour applied — is not a contract wholly or principally for labour.
• A genuine right to delegate or subcontract tells strongly against the subsection applying: JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76.
• Where the contract is with a company, trust or partnership, it is not a contract for the labour of an individual, so section 12(3) does not apply to it — although the arrangement should still be assessed for what it actually is.
• Where the subsection does apply, the guarantee is calculated on the earnings base the legislation provides, and a genuinely severable non-labour component raises a question that should be worked through rather than assumed either way.

In Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 the Full Court confirmed that the enquiry is confined to the statutory elements rather than a broader search for employment-like features, and found the practitioner's contract — which combined his personal services with a cash-flow guarantee that could not be disentangled from them — to be principally for his labour. In JMC the Full Court found a lecturer was neither a common law employee nor within section 12(3), because he had a real right to have the work performed by another person. The Commissioner's ruling SGR 2005/1 remains his published view, subject to the review flagged in his decision impact statement on JMC.

Holding an ABN, issuing invoices and being registered for GST do not resolve section 12(3) in either direction.

Payroll Tax

Payroll tax is imposed by each state and territory. The contractor provisions and the exclusions from them are not uniform, so a business engaging contractors in more than one jurisdiction needs the analysis done for each. In Victoria, Division 7 of Part 3 of the Payroll Tax Act 2007 (Vic) treats a payment under a relevant contract as wages: the principal is taken to be an employer, the contractor an employee, and the payment taxable wages.

The exclusions in section 32(2) are separate tests with different subjects, and they are frequently conflated. In outline:

• Section 32(2)(b)(ii) — 180 days. Services of a kind ordinarily required by the principal for less than 180 days in the financial year. This looks at the principal's requirement for that kind of service, not at the individual contractor. See Revenue Ruling PTA-020.
• Section 32(2)(b)(iii) — 90 days. A particular contractor who provides the same or similar services to the principal on no more than 90 days in the financial year. See Revenue Ruling PTA-035v2, which also explains the Commissioner's approach where the number of days is difficult to determine.
• Section 32(2)(b)(iv) — services to the public. A contractor who ordinarily performs services of that kind to the public generally, where the Commissioner is satisfied of that. See Revenue Ruling PTA-021v2, issued following Nationwide Towing & Transport Pty Ltd v Commissioner of State Revenue (No 2) [2018] VSC 609.
• Section 32(2)(c) — contractors engaging others. Where the contractor engages employees or other contractors to perform some or all of the work. See Revenue Ruling PTA-023.
• Section 32(2)(d)(i) — owner-drivers. Certain contracts for services ancillary to the conveyance of goods by a vehicle the contractor provides. See Revenue Ruling PTA-006.

That is a summary of commonly relevant exclusions rather than a complete list, and each has conditions that have to be satisfied on the facts. Whether the worker is an employee at the threshold — before Division 7 is reached at all — is addressed in Revenue Ruling PTA-038.

Where a relevant contract covers materials or equipment as well as labour, section 35(2) allows the Commissioner to determine an amount that may be deducted from the payment. The Commissioner administers that through Revenue Rulings PTA-018, which sets percentage deductions for listed classes of contractor, and PTA-019, which addresses how labour and non-labour components are treated.

Medical, dental, allied health and similar practices are addressed in Revenue Ruling PTA-041, which applies Division 7 to arrangements between practices and practitioners following Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue. Payroll tax audits are one of the most common ways a broader classification problem is discovered, typically by tracing ABN payments through the ledger and asking the business to establish that an exclusion applies.

Victorian WorkCover

The Workplace Injury Rehabilitation and Compensation Act 2013 (Vic) has its own concept of a "worker", and Schedule 1 deems particular categories of person — including certain contractors — to be workers, with the principal deemed to be the employer. Whether a given contractor falls within the scheme depends on the statutory criteria and the facts of the engagement, not on the Fair Work Act, superannuation or payroll tax conclusions.

Where contractors do fall within the scheme, their remuneration generally needs to be included in the rateable remuneration declared to WorkSafe. Under current WorkSafe guidance the calculation starts with the total paid for the services, excludes GST, and then applies any prescribed percentage deduction for capital or materials that applies to that class of contractor.

Where remuneration has been understated, the ordinary consequences are a reassessment of premium for the affected periods and the penalties set out in WorkSafe's premium guidelines for underestimation or for an incorrect certified statement, together with the effect of any accepted claim on future premium. That is a different situation from being an uninsured employer, which arises where a business was required to register and hold cover and did not do so, and which brings its own recovery and penalty provisions. Failing to declare contractor remuneration under a policy the business does hold is not the same thing as having no policy, and the two should not be conflated when the risk is being assessed. Businesses engaging contractors outside Victoria need to check the statute, deeming provisions and declaration rules of each scheme that applies.

Regulated Workers: Employee-Like and Road Transport

Chapter 3A of the Fair Work Act, introduced by the Closing Loopholes reforms, gives the Fair Work Commission functions in relation to two defined groups: employee-like workers who perform digital platform work, and regulated road transport contractors. The starting point is that these are protections for people who remain contractors. Coverage by Chapter 3A does not make a worker an employee, and it does not answer the classification question this article is about.

Within that Chapter the Commission may make minimum standards orders, which are binding, and minimum standards guidelines, which are not; may register collective agreements between platforms or road transport businesses and registered organisations; and may deal with unfair deactivation of an employee-like worker and unfair termination of a regulated road transport contractor. Part 3A-5 separately deals with unfair contract terms, discussed below.

The first minimum standards order, the Interim On-Demand Delivery Employee-like Worker Minimum Standards Order made in [2026] FWCFB 211, took effect on 17 August 2026. It applies to employee-like workers engaged through a digital labour platform to collect food, drinks, alcohol or groceries and deliver them to a customer as soon as possible, and to the platform operators that engage them. Its scope is defined by the order itself, including limits on the kind of vehicle used.

It does not follow that all gig work, or all owner-driver work, is covered. Whether a particular worker is an employee-like worker or a regulated road transport contractor, and whether an operative instrument applies to them, requires the definitions and the instrument to be checked against the arrangement.

Unfair Contract Terms for Contractors

Since 26 August 2024, Part 3A-5 of the Fair Work Act, operative from sections 536MY to 536NC, has allowed an application to the Fair Work Commission about unfair terms of a services contract. It is a real but confined jurisdiction, and it is not correct to say that independent contractors generally have access to it. Broadly, it requires:

• a services contract with the constitutional connection the Part specifies — typically a party that is a constitutional corporation, the Commonwealth or a Commonwealth authority, or a territory body corporate, or work performed mainly in a Territory;
• a contract entered into on or after 26 August 2024;
• annual earnings under the contract below the contractor high income threshold — the same indexed figure as for opting out, $190,100 for the year from 1 July 2026 — so the jurisdiction is unavailable to higher-earning contractors; and
• terms that, in an employment relationship, would relate to workplace relations matters.

The remedy is correspondingly limited: under section 536NC the Commission may set aside, or amend or vary, the whole or part of the contract. It is not a jurisdiction to award compensation, and it is not the unfair dismissal regime in Part 3-2, which applies to employees.

The separate unfair contracts jurisdiction under Part 3 of the Independent Contractors Act 2006 (Cth) continues to operate, exercised by the courts, with its own eligibility and remedies. That Act contains limitations on review where other proceedings about the same contract are in progress, so the two avenues are not simply cumulative. Which is available for a particular contract, and which is preferable, needs to be assessed before an application is made.

Sham Contracting

Division 6 of Part 3-1 of the Fair Work Act prohibits three things:

• Section 357 — representing to an individual who is an employee that their contract of employment is a contract for services under which they perform work as an independent contractor;
• Section 358 — dismissing or threatening to dismiss an employee in order to engage them as an independent contractor to perform the same, or substantially the same, work; and
• Section 359 — knowingly making a false statement to persuade or influence an employee to become an independent contractor performing the same or substantially the same work.

Section 358 deserves particular attention in a restructure. What it prohibits is dismissing, or threatening to dismiss, an employee for the purpose of engaging them as a contractor to do the same or substantially the same work, so the purpose and the conduct both matter and a proposal that never becomes a dismissal, threat or ultimatum is not itself a completed contravention. A proposed conversion nevertheless creates a serious section 358 risk and should be reviewed before any dismissal, threat, ultimatum or re-engagement occurs. Where the elements are established, the label applied to the new arrangement and the way the new documents are drafted do not avoid the prohibition.

The defence has been tightened. Section 357(2) now requires the employer to prove that, when the representation was made, it reasonably believed the contract was a contract for services, and section 357(3) requires regard to be had to the size and nature of the employer's enterprise. That is a materially higher bar than the former test of not knowing and not being reckless.

Civil penalties apply per contravention. As at 6 July 2026 the Fair Work Ombudsman publishes maximum penalties for a contravention of the sham contracting provisions of $21,840 for an individual and $109,200 for a business with fewer than 15 employees. For a business with 15 or more employees, the maximum is the greater of $546,000 or three times the amount of the underpayment for the contravention, where an underpayment amount applies — sham contracting is one of the underpayment-related provisions carrying that alternative calculation, and in a case with no quantified underpayment the $546,000 figure is the operative maximum. Those amounts are calculated by reference to the Commonwealth penalty unit, which is indexed, so the Fair Work Ombudsman's current penalty material should be checked rather than relying on a figure in an article. Individuals who are knowingly involved, including directors, managers and in some cases advisers, may be liable as accessories.

What Reclassification Actually Costs

Reclassification consequences are regime-specific and fact-specific. It is not the case that every item below becomes payable whenever a contractor is found to be an employee, and an accurate assessment begins by identifying which regimes are engaged and for which periods.

• Wages and award entitlements — where a modern award or enterprise agreement applies, the shortfall between what was paid and what was owed, including overtime, penalty rates, allowances and loadings. Claims for unpaid entitlements under the Fair Work Act are generally subject to a six-year limitation period.
• Leave — annual leave and other paid leave that would have accrued, and public holiday pay. Long service leave is state based: in Victoria it is governed by the Long Service Leave Act 2018 (Vic), with its own qualifying service and continuity rules.
• Superannuation — shortfalls and the superannuation guarantee charge, with quarters ending before 1 July 2026 dealt with under the former quarterly rules and paydays from 1 July 2026 under the Payday Super regime, so a long-running arrangement usually straddles both.
• PAYG withholding — consequences depending on the withholding basis that applied, with penalties and general interest charge assessed on the particular facts.
• Payroll tax — reassessment with interest and penalties in each jurisdiction where the engagement was caught, subject to the exclusions and deductions available there.
• Workers compensation — premium reassessment and penalties for understated remuneration, and the cost consequences of any claim.
• Statutory claims — unfair dismissal and general protections applications have their own eligibility requirements, including the minimum employment period and the high income threshold for unfair dismissal, and short application periods, which is why classification is so often litigated immediately after an engagement ends.
• Civil penalties — where a contravention of the Fair Work Act, including sham contracting, is established.

Aggregate exposure across a workforce can be significant even where individual amounts are modest, and group proceedings about classification are an established feature of Australian litigation. Whether that risk is material for a particular business depends on the number of engagements, the documents, the conduct and the periods involved.

Documenting the Engagement

Documentation matters, but it cannot do work the relationship does not support. A written agreement for a genuine contractor engagement will usually deal with the services and deliverables, the price and whether it is payable on a result or for time, the term and termination rights, delegation, equipment and insurances, the contractor's freedom to work for others, intellectual property and confidentiality, GST and invoicing, and dispute resolution. Acknowledgements about the nature of the relationship are common and are not determinative.

Three cautions are worth stating plainly, because they are where drafting most often goes wrong.

• Do not insert contractor features that do not reflect reality. A delegation right nobody may use, an obligation to supply equipment the business in fact supplies, or a statement that the contractor may work for competitors when the arrangement assumes otherwise, tends to weaken the position rather than strengthen it — and under section 15AA performance in practice is expressly relevant.
• Conversion carries its own risk. Moving a person from employment to contracting for substantially the same work raises a serious section 358 risk — a dismissal or threatened dismissal for that purpose may contravene it — and, depending on how it is done, the general protections provisions as well. Take advice before any dismissal, threat, ultimatum or re-engagement.
• Redrafting does not cure historical exposure. A new agreement operates prospectively. Past periods continue to be assessed on what the arrangement actually was, and dealing with them is a separate exercise involving quantification, limitation and transition periods and, where appropriate, disclosure.

This article does not include a contractor agreement precedent. Documents of that kind should be prepared for the particular engagement, after the classification question has been worked through.

A Practical Decision Framework

A structured review of a contractor arrangement generally follows these steps. It is a framework for gathering and organising the right material, not a substitute for legal or accounting advice on a particular business.

1. Identify the parties. Which entity is engaging, and who actually supplies the services — an individual, or a company, trust or partnership, and if so who performs the work.
2. Identify the regime in question. Fair Work Act, income tax and PAYG, superannuation guarantee, payroll tax in each relevant jurisdiction, or workers compensation. The answer can differ between them.
3. Obtain the complete agreement. The signed document, any variations, schedules, purchase orders, position descriptions, policies that are said to apply, and any superseded terms, together with the dates each applied.
4. Document how the work is really performed. Direction and coordination, delegation in practice, hours and availability, tools and systems, insurances, other clients, pricing, rectification of defects and who bears cost when something goes wrong.
5. Weigh the indicia in context. Control, delegation, result, tools, risk, goodwill and integration — assessed together, against both the contract and the practice, without treating any one as decisive.
6. Assess each regime separately. Section 15AA where the Fair Work Act applies; the common law position for PAYG and income tax; section 12 including the extended definition in section 12(3) for superannuation; the relevant contract provisions and exclusions for payroll tax; and the deeming provisions for workers compensation.
7. Quantify by period. Historic exposure, mapped against limitation periods and the superannuation transition across 1 July 2026, so that the size and shape of the problem is known before anything is decided.
8. Take advice before acting. Termination, conversion of status, voluntary disclosure and remediation each have consequences of their own, and the order in which they are done matters.

Reviews are most useful before they are urgent — on an acquisition or sale, when a regulator or worker raises a question, when enforcement activity is occurring in the industry, and periodically as ordinary governance.

Common Mistakes

• Relying on the label, the ABN or the template rather than the substance of the arrangement;
• Assuming one answer covers every regime, so that a defensible Fair Work position is treated as also resolving superannuation, payroll tax and workers compensation;
• Treating superannuation as settled because the worker is a contractor, without working through section 12(3);
• Applying the payroll tax exclusions loosely — in particular confusing the 180-day test, which is about the kind of service the principal requires, with the 90-day test, which is about a particular contractor;
• Not declaring contractor remuneration for workers compensation, or assuming that an understatement is the same thing as having no cover;
• Letting an engagement drift — the worker's role expands, supervision increases, exclusivity develops — without revisiting classification;
• Inserting contractor features into documents that the arrangement does not support, or redrafting in the belief that it addresses past periods;
• Converting an employee into a contractor doing substantially the same work; and
• Ending a long-standing contractor engagement without first considering the claims that may follow.

Related Reading

Classification is often the first question in a broader employment issue. For the claims that most often follow a disputed engagement, see our guides to unfair dismissal claims and general protections and adverse action. Where a classification review turns up broader payment problems, our guide to wage underpayments and payroll audits covers remediation, and annualised salaries under modern awards deals with the compliance rules for salaried award staff. On process, see workplace investigations and termination for serious misconduct.

How Parke Lawyers Can Help

Parke Lawyers advises Australian small and medium businesses, professional services firms, medical and allied health practices, trades businesses and start-ups on contractor arrangements — classification analysis under the Fair Work Act and, separately, under the tax, superannuation, payroll tax and workers compensation regimes; documenting genuine contractor engagements; sham contracting risk; superannuation guarantee exposure including section 12(3) deeming and the Payday Super rules; responding to Fair Work, Australian Taxation Office, State Revenue Office and WorkSafe enquiries; and reviews before an acquisition, restructure or sale. Our employment law and commercial and business law teams work together, so a matter can move between classification advice, documentation, regulator response and dispute resolution without starting again.

Frequently Asked Questions

Sources and further reading

• Fair Work Act 2009 (Cth) — ss 15AA–15AD, 357–359, 536MY–536NC, 546, 557A
• Fair Work Ombudsman — opting out of the whole-of-relationship test, and the contractor high income threshold
• Fair Work Ombudsman — sham contracting and current maximum penalties
• Fair Work Commission — independent contractor disputes about unfair contract terms
• Fair Work Ombudsman — on-demand delivery minimum standards order, effective 17 August 2026
• Treasury Laws Amendment (Payday Superannuation) Act 2025 (Cth)
• Explanatory Memorandum, Treasury Laws Amendment (Payday Superannuation) Bill 2025 (Cth)
• Australian Taxation Office — Payday Super, including payment deadlines and the superannuation guarantee charge
• LCR 2026/1 — Payday Super: application and transitional provisions
• Superannuation Guarantee (Administration) Act 1992 (Cth) — s 12
• Payroll Tax Act 2007 (Vic) — s 32 relevant contracts and exclusions
• State Revenue Office Victoria — contractors, and Revenue Rulings PTA-006, PTA-018, PTA-019, PTA-020, PTA-021v2, PTA-023, PTA-035v2, PTA-038 and PTA-041
• WorkSafe Victoria — calculating contractor remuneration
• WorkSafe Victoria — how rateable remuneration and premium work