By Greg Allan, tradesman and creator of Data First Coaching
Why does getting subcontractor status wrong cost more than an ATO bill?
For a cleaning and restoration business, calling someone the wrong thing does not just risk a fine. It risks the labour cost sitting in the wrong place on the profit and loss, so a job that looks profitable on paper is quietly losing money and nobody notices until the bank balance does not match.
Most cleaning businesses are running several kinds of labour at once: a roster of recurring commercial cleans, casual cleaners on an end of lease or bond clean, and specialist subbies brought in for carpet and upholstery work, water damage, fire damage or mould restoration. Each of those has a different cost shape. If a subcontractor's invoice for a mould job or a forensic clean lands in overheads instead of cost of sales, the gross profit on that contract looks healthier than it is. The owner only finds out when the cash does not add up, often well after the quote was built on a margin that was never real.
How do you tell if someone cleaning for you is a subcontractor or an employee?
You look at who controls the work, who carries the financial risk, who supplies the tools and equipment, whether the person can delegate or subcontract the job, how the hours are set, and whether the arrangement is expected to continue indefinitely. The Fair Work Ombudsman sets out these factors on its independent contractors page, and none of them decides it alone.
Picture the difference between two people cleaning for you. One runs your roster of office cleans on your schedule, uses your chemicals and equipment, and is told which site to attend and when. The other is a water damage or mould specialist you call in for a specific insurance job, who quotes the job, brings their own gear, and could send a different technician if theirs was busy. The ATO's own cleaning industry examples work through cases like these, including a cleaner who is not subject to direct supervision and can accept or reject extra work, against one who is contractually required to clean on set hours and have the work checked (see the ATO's cleaning examples). The icare guide to classifying workers sets out a similar split for workers compensation purposes in New South Wales, looking at whether the person is paid on a quote for the job and supplies their own tools, or is directed, paid by time and supplied with tools.
What changes with the Cleaning Award, super and workers compensation once you classify them?
Once you decide someone is a contractor rather than an employee, three separate obligations shift, and each is decided by a different body with its own test, so getting the ATO question right does not automatically settle the others.
The Fair Work Ombudsman says that most employees and employers in the contract cleaning industry are covered by the Cleaning Award, but if someone works directly for your cleaning business rather than through a contract cleaning arrangement, the award may not apply at all (see contract cleaning). For superannuation, the ATO says that if you pay a subcontractor mainly for their personal labour under the contract, rather than for a specified result, they can be treated as an employee for superannuation guarantee purposes, and it does not matter whether they hold an ABN (see super for independent contractors). For workers compensation, a subcontractor can still be treated as a deemed worker under some state schemes, and SafeWork Australia's comparison table shows this coverage differs by state and territory (see coverage of contractors and labour hire workers), so check the regulator named for the state your crews are working in. The Fair Work Ombudsman also notes that an ABN or an invoice is never the whole answer on its own; its whole of relationship test looks at the real substance and practical reality of the arrangement. A cleaning business paying contractors or subcontractors for cleaning work also needs to lodge a Taxable Payments Annual Report, while payments to employees are never reported in that report (see the ATO's TPAR page for cleaning services), so the classification you land on changes a lodgement, not just a payslip.
This is general information, not legal, tax or employment advice. Check your own situation with the body named here or a qualified adviser.
How do you keep this straight in your own numbers, job by job?
You check it against the job the money was actually paid for, line by line, rather than trusting the figure that shows up at year end. That is what data first means for a cleaning business: the answer sits in your own job and pay data, not in memory.
A roster of recurring commercial contracts, a run of end of lease bond cleans, and a handful of insurance jobs for water damage, fire damage or mould restoration all carry labour differently, and a subcontractor's invoice or a casual's hours can land in the wrong bucket without anyone noticing at the time. An AI agent, which is software that does a job the way you would, with your prices, wording and rules, can be set to check as invoices and timesheets come in whether a subcontractor's cost is sitting against cost of sales on the right site, or quietly padding overheads. A second AI agent can flag TPAR-reportable payments as they are coded, so that report is not built from memory in a rush. Neither agent decides whether the person is a contractor or an employee. They make sure that whichever way you have classified them, the cost ends up where your margin actually depends on it.
Where can you check the current rules?
- ATO - cleaning industry examples: worked examples of cleaners classed as employees or contractors.
- Fair Work Ombudsman - independent contractors: the main factors used to tell a contractor from an employee.
- Fair Work Ombudsman - whole of relationship test: how the overall relationship is weighed, not any one factor.
- Fair Work Ombudsman - contract cleaning: when the Cleaning Award applies to a cleaning business.
- icare NSW - classifying workers or contractors: a workers compensation test for cleaning crews in New South Wales.
- SafeWork Australia - coverage of contractors and labour hire workers: how workers compensation coverage of contractors differs by state and territory.
- ATO - super for independent contractors: when a contractor is still owed super.
- ATO - cleaning services TPAR: when a cleaning business must lodge a Taxable Payments Annual Report.
How does Data First Coaching approach this?
Data First Coaching does not start with the classification question on its own. It starts by checking the owner's own profit and loss, job by job, to see where a subcontractor's invoice or a casual wage has actually landed, because a margin you have not checked line by line is a margin you cannot trust. Greg Allan puts it plainly: “It's really important that you can trust your profit and loss in your balance sheet.” Working out how to set that up, and how AI agents carry the checking each week, is worked through inside the Academy, with members, because the Trade Business Intelligence is powered by every member who is open minded, innovative and willing to share what they learn.
