Calling a worker a "subbie on an ABN" does not make them one — and since the Closing Loopholes reforms the law looks past your paperwork to how the relationship actually works. Get it wrong and you are up for back-paid entitlements, unpaid super, and sham-contracting penalties. Here is the test, what changed, and what it costs.
The two tests (and why they can disagree)
- Tax and super (ATO): start with the written contract — is the worker "serving in your business" (employee) or "running their own" (contractor)? The contract terms are decisive unless it is a sham or has been varied.
- Fair Work (from 26 August 2024): the new s15AA test looks at the "real substance, practical reality and true nature" of the relationship — beyond the contract, to how the work is actually done.
So a worker can be a contractor for tax and super but an employee for Fair Work purposes — an ATO-versus-Fair-Work misalignment you have to watch.
The factors that decide it
No single factor is decisive — it is the whole picture:
- Control — who decides what, how, where and when.
- Integration vs own business — your logo and roster vs their ABN, ads, own clients and multiple builders.
- Payment basis — hourly or salary plus leave vs quote, milestone or invoice.
- Tools and risk — you supply the plant vs they supply tools and vehicle and wear the rectification cost.
- Delegation — must do it personally (employee) vs can send another qualified worker (contractor).
- Exclusivity — long-term single builder vs short-term work for multiple principals.
The danger profile is a long-term, exclusive, hourly worker on an ABN using your gear — that looks like an employee whatever the contract says.
What Closing Loopholes changed
- The s15AA definition reverses the High Court "contract-only" approach for Fair Work purposes — courts and the FWC look at the totality.
- A high-income contractor opt-out lets contractors above the threshold (around $183,100) agree in writing to be judged mainly on the contract — but that is high-end consultants, not on-tools trades.
- The FWC can void unfair terms in a contractor's agreement — a practical route for a misclassified "contractor" to challenge.
- The sham-contracting defence got harder — it shifted from "did not know and was not reckless" to having to show you "reasonably believed" the worker was a contractor.
(The 2022 High Court cases — Personnel Contracting and Jamsek — still matter for tax and super, but the new test overlays Fair Work.)
Sham contracting — and the penalties
Three prohibited moves:
- s357 — misrepresenting employment as a contract for services.
- s358 — dismissing (or threatening to) an employee to re-engage them as a contractor for the same work.
- s359 — knowingly making a false statement to push someone into a contract.
Penalties (2025-26): about $19,800 for an individual, $99,000 for a business under 15 employees, and $495,000 for a business with 15+ — and each pay period or misrepresentation can be a separate contravention, so the aggregate balloons.
And it is not just the fine. Get it wrong and you back-pay all the employee entitlements for the whole period (leave, notice, redundancy, overtime, penalties), plus unpaid PAYG and super with interest, workers'-comp breaches, and potential wage-theft exposure.
Common mistakes
- "ABN subbies" who look and operate like employees.
- Relying on a well-drafted contract while the day-to-day reality says employee.
- Never actually doing the classification before you engage someone.
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