Calling someone a contractor does not make them one. Businesses that rely on contractors, from tradies and consultants to marketing freelancers, face a stricter test than they did a few years ago.
How the test has changed
In 2022 the High Court decided two cases (Personnel Contracting and Jamsek) holding that, if a written contract is comprehensive and genuine, the courts should look mainly at its terms to decide whether someone is an employee.
Parliament then changed the rule. For the Fair Work Act, from 26 August 2024 the question is answered by looking at the real substance and practical reality of the whole relationship, including how the parties actually work, not only what the contract says. A well-drafted contract helps, but it no longer settles the question by itself.
Factors that point to employment
- The business controls how, when and where the work is done.
- The worker must do the work personally, with no right to send a substitute.
- The worker is integrated into the business: uniform, business email, team meetings, set rosters.
- The worker does not carry commercial risk: no quotes, no chance of profit or loss, paid by the hour.
- The worker works mainly or only for one business, on an ongoing basis.
- The business supplies the tools and equipment.
An ABN, an invoice and a "contractor agreement" do not outweigh the rest.
The risks of getting it wrong
- Back-pay of minimum wages, penalty rates, leave and entitlements under the award.
- Superannuation shortfalls, and tax, payroll tax and workers' compensation issues.
- Sham contracting: misrepresenting an employment relationship as a contracting one is a contravention with significant penalties.
- Criminal exposure for underpayment. Since 1 January 2025, intentionally underpaying wages is a criminal offence in the federal system.
Protections for genuine contractors too
Real contractors have gained rights as well. Under the 2024 reforms, some contractors earning under the high-income threshold can ask the Fair Work Commission to review unfair terms in a services contract. The Fair Work Commission can also set minimum standards for some "employee-like" workers on digital platforms.
What to do now
- List everyone you pay on an invoice and ask, for each person, whether the working reality looks like employment.
- Fix the arrangement, not just the paper. If someone is in substance an employee, put them on a proper employment contract.
- For genuine contractors, make sure the agreement says who controls the work, who provides tools, who carries risk, and whether the contractor can delegate.
- Review pay and super for anyone you reclassify, and seek advice about back-pay risk before you act.
- Check which system you are in. In WA, sole traders, partnerships of individuals and some trusts are in the state system, where the common-law tests still matter.
Our employment and contracts team prepares contractor agreements, reviews arrangements and advises on reclassification risk for Perth and WA businesses.
Talk to us about your contractor arrangements
General information only, current at November 2026. It is not legal advice.
