Contractor Issues

We act for workers who were labelled contractors when they should have been employees. We can help you recover entitlements and superannuation, and seek penalties against the business. The law changed on 26 August 2024: the real substance of the relationship now decides whether you are an employee.

Difference Between Employees And Contractors

Whether you are an employee or an independent contractor matters enormously. Employees have minimum wages, leave, superannuation, notice and protection from unfair dismissal; genuine contractors mostly do not. Getting the classification wrong can cost workers a lot, and expose businesses to back-payments and penalties. At a basic level, an employee works in someone else’s business for wages or a salary, while a contractor runs their own business and provides services to clients.

The label in your contract, or the fact that you have an ABN and send invoices, does not decide it.

Being Engaged As A Contractor Or Employee

Employees are entitled to things a contractor usually is not, including award wages, paid leave, superannuation guarantee contributions and workers’ compensation cover.

Those entitlements cost money, and some businesses, knowingly or not, try to avoid them by calling workers contractors.

If you understand the difference, you are less likely to be taken advantage of, and you can claim the entitlements of an employee if that is what you really are.

How Do I Know If I Am An Employee Or A Contractor?

Signing a contractor agreement and having an ABN does not automatically make you a contractor. MKI Legal can help you work out whether you are a contractor or an employee.

The Law Since 26 August 2024

For the purposes of the Fair Work Act, whether you are an employee is now decided by the real substance, practical reality and true nature of the relationship. The whole relationship is considered: the terms of the contract and how it was actually performed in practice (s 15AA of the Fair Work Act 2009 (Cth)). The Fair Work Ombudsman calls this the “whole of relationship” test.

This change was made in response to two 2022 High Court decisions, Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, which had said that a comprehensive written contract largely decided the question. That contract-focused approach still matters for time before 26 August 2024, for some businesses in other states, and outside the Fair Work Act, for example for tax and payroll tax.

Opting out. A worker who earns more than the contractor high income threshold ($190,100 from 1 July 2026) can give the business a written notice opting out of the whole of relationship test, so that the contract terms decide the question instead (s 15AB). The choice is the worker’s, not the business’s, and it can be revoked.

WA state system. If the business is a sole trader, partnership or other employer outside the national system, the WA Industrial Relations Act 1979 has its own real-substance test for claims made from 31 January 2025 (s 7A). See our WA state system guide.

The Factors

Whichever test applies, these factors are commonly weighed. Ask yourself:

Control: Who decides how, when and where the work is done? Contractors usually control their own work; employees are directed.

Own business: Are you really running your own business, with your own clients, marketing and business risk, or are you working in theirs?

Delegation: Can you send someone else, or subcontract the work? Employees must do the work personally.

Tools and equipment: Do you supply and pay for significant tools, equipment or a vehicle, or does the business?

Payment and risk: Are you paid by the hour or a regular amount, or by quoting for results and bearing the cost of fixing defective work?

Integration and exclusivity: Do you wear their uniform, represent yourself as part of their team, and work only for them, with regular hours and an expectation of ongoing work?

No single factor decides it, and the label you were given is not decisive. If most of your answers point toward the business controlling your work, get advice.

Superannuation Contribution Payments

Even if you are genuinely a contractor, you may still be entitled to superannuation because of the extended definition of employee in s 12 of the Superannuation Guarantee (Administration) Act 1992 (Cth). If you work under a contract that is wholly or principally for your labour, you can be an employee for superannuation purposes.

This generally applies to contractors engaged as individuals (for example, sole traders), not to those contracting through their own company. It also depends on the contract being mainly for your labour and skills; if you mainly supply equipment, materials or a result, it may not apply. The ATO’s super guarantee eligibility tool can help.

Contractor Rights

Even if you have been treated as a contractor, you may have these rights:

If you are really an employee, you can claim the protections of an employee, including unfair dismissal or general protections if your engagement was ended.

If you are really an employee, you can claim your employment entitlements, such as minimum wages under the award, annual leave, personal leave, long service leave and superannuation, generally going back up to 6 years.

You can seek remedies under the sham contracting provisions of the Fair Work Act, including penalties against the business.

If you are a genuine contractor, you may be able to challenge unfair contract terms, or bring a breach of contract claim.

If you are an employee-like worker doing digital platform work, or a contractor in the road transport industry, you may have extra protections as a regulated worker (see below).

Protections For Contractors

The general protections in the Fair Work Act also protect independent contractors from adverse action, coercion and misrepresentation about their workplace rights.

Sham contracting. Sections 357 to 359 of the Fair Work Act stop a business from disguising employment as contracting. A business must not:

misrepresent an employment contract as a contract for services (s 357). Since 27 February 2024, the business’s only defence is that, when it made the representation, it reasonably believed the contract was a contract for services;

dismiss, or threaten to dismiss, an employee in order to re-engage them as a contractor to do the same or substantially the same work (s 358); or

knowingly make false statements to persuade a current or former employee to become a contractor for the same or substantially the same work (s 359).

A business that engages in sham contracting can be ordered to pay penalties and compensation, and people involved in the contravention can be personally liable.

Regulated workers. Since 26 August 2024, some contractors are regulated workers with extra protections: employee-like workers doing digital labour platform work (for example some delivery and rideshare work), and certain road transport contractors. The Fair Work Commission can set minimum standards for them, and an employee-like worker can apply to the Commission about an unfair deactivation from a platform. See the Commission’s page on unfair deactivation or termination for regulated workers.

Contractors Making An Unfair Dismissal Claim

If you were labelled an independent contractor but your relationship was really one of employment, and your engagement has been ended, you may have been dismissed. You can then make an unfair dismissal or general protections claim, if you meet the other requirements.

The Fair Work Commission will look at the real nature of your working relationship to decide whether it can deal with your claim. The claim must be lodged within 21 days of the engagement ending, so do not wait to sort out the classification question first.

Unfair Contract Terms

Genuine contractors have two routes to challenge unfair terms, depending on what they earn.

Earning below the contractor high income threshold ($190,100 from 1 July 2026): since 26 August 2024 you can apply to the Fair Work Commission if you think your services contract contains an unfair term, where the contract has the necessary connection to the Commonwealth’s powers, for example because you contract with a Pty Ltd company. The Commission can set aside or vary unfair terms. See the Commission’s Form F91.

Earning above that threshold: you can apply to a court for review of a harsh or unfair services contract under the Independent Contractors Act 2006 (Cth). The court looks at the terms of the contract, the relative bargaining positions, any undue influence or pressure, whether the pay is less than an employee doing similar work would receive, and other relevant matters.

Your first step is often to raise the issue with the business, or use any dispute process in the contract.

Reviewing Your Contractor Agreement

MKI Legal has extensive experience advising contractors about their rights and obligations, and reviewing and preparing contractor agreements.

Some of the matters we look at when reviewing a contractor agreement are:

Whether the indemnity provisions are fair and reasonable, and whether you understand the risks you are accepting.

Whether the arrangement is a genuine contracting arrangement, and the risks if it is really employment.

Any restrictions on working for other people or businesses.

Insurance obligations.

Whether and how you can delegate work.

Any unfair contract terms.

Payment terms, timeframes and invoicing.

Superannuation.

Intellectual property.

Termination.

Confidentiality and any restraint provisions.

Case studies

How the law played out in real cases

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Published decisions of courts and tribunals, summarised in plain English from the published decision. Every case turns on its own facts.