How do trade businesses distinguish employees and contractors?

Three things decide the approach

Identify the business's coverage first. Fair Work includes proprietary limited companies, trading or financial corporations and specified territory/Commonwealth businesses in its constitutionally covered category. State-referred national-system businesses include sole traders, partnerships and other specified entities in NSW, SA, Queensland, Victoria and Tasmania. Do not decide coverage from a name alone.

A worker earning above the contractor high income threshold at a constitutionally covered business can opt out of the whole of relationship test and use the start of relationship test instead. The threshold changes each year, so check the current figure.

Sources[1][2]

How the tests compare

State-referred businesses use the start test for most entitlements and obligations, but Fair Work says the whole-of-relationship test applies to them for a limited number of provisions. Other coverage and opt-out exceptions also matter. If your business is outside the categories described, confirm the applicable system before classifying a worker.

Sources[1][2][3]

Factors, and what is not enough

Fair Work lists control over how work is done, financial responsibility and risk, who supplies tools and equipment, ability to delegate or subcontract, hours of work, and expectation of work continuing. All are considered together. It says a worker with an ABN or who issues invoices is not automatically a contractor, and the type of work alone does not decide it.

For tax and super, the ATO says the contract label does not decide the relationship. Its guidance treats directly engaged individual apprentices, trainees, labourers and trades assistants as employees, and distinguishes hiring a company, trust or partnership from hiring an individual. Certain independent contractors can still be employees for super purposes.

Sources[1][2][3]

Worker review checklist

This is an original record, not a classification guarantee. Fair Work and the ATO both say the question can be complicated and may need legal advice.

WORKER REVIEW RECORD
Worker or business engaged: [name]   Date reviewed: [DD/MM/YYYY]   Reviewed by: [name]

1. WHO IS ENGAGING THEM?
My business structure: [Pty Ltd or Ltd / sole trader / partnership / other]   State: [ ]
Fair Work test that appears to apply: [whole of relationship / start of relationship / unsure, get advice]

2. WHO IS THE WORKER?
[ ] Individual   [ ] Company   [ ] Trust   [ ] Partnership   ABN: [ ]
[ ] Apprentice, trainee, labourer or trades assistant (ATO treats these as employees)

3. THE ARRANGEMENT (note the contract term and, where relevant, how it works in practice)
Control over how, where and when the work is done: [ ]
Who carries the risk of defects, injury and cost overruns: [ ]
Who supplies tools and equipment, and is any allowance paid: [ ]
Can they delegate or subcontract, and is that clause real: [ ]
Paid for time, a price per item, or a result: [ ]
Ongoing or one-off job: [ ]

4. NOTES AND DECISION
Written agreement on file: [yes/no]
Outcome for Fair Work purposes: [ ]
Outcome for tax and super purposes: [ ]
Advice sought from: [ATO / Fair Work / adviser / lawyer], date: [ ]
Next review date: [ ]

Sources[1][2][3]

Common questions

What is the ATO definition of a contractor?

The ATO says an independent contractor provides services to your business and performs work to further their own business, while an employee serves in your business as its representative. You assess this from the legal rights and obligations in the contract, not the label used.[3]

Am I an employee or subcontractor?

It depends on the whole arrangement, not on having an ABN or sending invoices. Fair Work says to consider control, financial risk, tools and equipment, ability to delegate, hours and expectation of ongoing work together. Which test applies depends on the business you work for.[1][2]