The "ABN subbie" model is now squarely in the sights of a joint Fair Work–ATO crackdown, and construction is the number-one target. Here is how enforcement actually works, the penalties that stack, and the indicators that separate a genuine subbie from a sham. (For the classification test itself, start with Employee vs Contractor & Sham Contracting.)
The three prohibited moves
Sections 357–359 of the Fair Work Act: misrepresenting employment as contracting (s357), sacking-and-rehiring an employee as a contractor for the same work (s358), and false statements to push someone onto an ABN (s359). Since 27 February 2024 (Closing Loopholes No. 2) the penalties jumped five-fold and the defence got harder — you now have to show you "reasonably believed" the worker was a contractor.
The penalties — and what stacks on top
Per contravention (2025-26): up to $19,800 for an individual, $99,000 for a small business (under 15 employees), and the greater of $495,000 or 3× the underpayment for 15+. Each pay period or misrepresentation can be a separate contravention. And on top of the Fair Work penalty come back-paid wages and entitlements, unpaid PAYG, and the ATO super shortfall charge with up to 200% additional SG. The exposure is rarely just one fine.
How they catch it — data-matching
This is the part tradies underestimate. Fair Work and the ATO run a joint crackdown on construction (and road freight), and the key tool is data-matching:
- Your TPAR (the contractor payments you report) is matched against ABN records, tax returns, super and STP.
- That flags individuals working almost exclusively for one business, or contractors who are not lodging or paying.
In 2024-25 there were over 7,000 construction tip-offs, around 20% alleging sham contracting. "We did not know" no longer works — document your classification reasoning and get advice.
Genuine subbie vs sham — the indicators
Under the "real substance" test, the split looks like this:
| Genuine contractor | Sham (really an employee) |
|---|---|
| Supplies and maintains own tools/plant | Turns up with minimal tools; you supply the gear |
| Controls method and sequence; can hire/sub-contract | You direct daily tasks, hours and breaks like staff |
| Paid for a result (per-job/m²/package); bears rectification risk | Paid hourly/daily at your fixed rate; no real risk |
| Own branding, multiple builders, can send a substitute | Works almost exclusively for you, "part of the company", cannot refuse shifts |
| Invoices, charges GST, runs a real business | Asked to "get an ABN" but you dictate everything |
Example: a tiler quoting a lump sum per bathroom, with own tools, own crew, several builders and PL insurance, fixing defects at their own cost → genuine. A labourer told to get an ABN, working 7 to 3 under your supervision with your tools, unable to hire help or pick jobs → an employee misrepresented as a contractor.
The biggest red flag of all is converting a former employee to a "contractor" doing the same work without a genuine change — and re-labelling employees through a labour-hire company is caught too (that is what FWO v Quest established).
Common mistakes
- The "get an ABN" labourer.
- Ex-employee turned "contractor" doing the same job.
- No documented classification reasoning when you engage someone.
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