By Greg Allan, tradesman and creator of Data First Coaching
What actually decides whether someone is a subcontractor or an employee?
The label on the invoice does not decide it. What decides it is the whole working relationship between the handyman business and the person doing the work: who controls how the job gets done, who owns the tools and van stock, and whether that person can send someone else to finish a repair in their place.
According to the ATO's guide to hiring a new worker, a business must first work out whether a worker is an employee or an independent contractor, and the test is the whole relationship: an employee works in the business, a contractor runs their own. The same page says apprentices, trainees, labourers and trade assistants are always employees, never contractors, no matter what the paperwork says.
The ATO's detail page on employee or independent contractor sets out the practical signs a handyman business can weigh up: if the business decides the job list, the hourly rate charged to the client, and when the gutter clean or the repair gets done, that points to an employee. If the worker supplies their own ladder, drill and van stock and is not reimbursed for them, that points to a contractor. And if the contract says the person must personally do the work and cannot delegate a small job to someone else, that also points to an employee.
Why does getting this wrong cost a handyman business more than it looks like?
Most owners treat this as paperwork. It is not. Calling someone a contractor when the real relationship is an employee's is called sham contracting, and the Fair Work Ombudsman has tightened the test for it.
The Fair Work Ombudsman's page on the independent contractor changes says the previous defence to a sham contracting claim, a 'recklessness' test, has been replaced with a 'reasonableness' test: the business now has to show it reasonably believed the worker was genuinely a contractor at the time, not just that it did not know better. For a handyman business running a maintenance round across several rental properties with a mix of subbies and casual labourers, that can be a harder bar to clear from memory long after the job was booked.
Workers compensation cover for contractors also differs by state and territory. Safe Work Australia's comparison of workers compensation arrangements shows individual contractors are generally not covered unless they fall into specific deemed-worker categories, with Tasmania naming the Tasmanian Civil and Administrative Tribunal as the final arbiter on disputed cases. A handyman business engaging the same subbie across New South Wales, Victoria and Tasmania cannot assume one rule covers all three.
Does having an ABN or a written contract settle it?
No. Neither an ABN nor a signed contract settles the question on its own.
business.gov.au's employee or contractor guide lists this as one of the most common mistakes a small business makes: having an ABN is not the deciding factor, because it depends on the whole working arrangement. The same page says a written agreement stating someone is a contractor does not override the real relationship, and does not remove the business's tax and super obligations if that person is legally an employee.
The ATO's page on the difference between employees and contractors adds a point worth knowing for a handyman business that engages a company or a trust to do repairs rather than an individual: an employee must be a natural person, so hiring a company, trust or partnership is a contracting relationship for tax and super purposes, even though the person turning up to do the job might be a director or employee of that contractor.
What's different for a company versus a sole trader doing handyman work?
Which test applies depends on how the handyman business is structured and where it operates, and the two tests can give a different answer for the same working relationship.
The Fair Work Ombudsman's page on independent contractors says a constitutional national system business, generally a company with Pty Ltd or Ltd in its name, must use the whole of relationship test from the twenty sixth of August 2024. Sole traders, partnerships and other unincorporated handyman businesses in New South Wales, South Australia, Queensland, Victoria and Tasmania instead use the start of relationship test. The Fair Work Ombudsman's page on contractors in building and construction adds that sole traders and partnerships based in the ACT or the Northern Territory use the whole of relationship test too, and that a contractor earning above the contractor high income threshold can choose to opt out of the whole of relationship test and use the start of relationship test instead, by giving written notice.
This is general information, not legal, tax or employment advice. Check your own situation with the body named here or a qualified adviser.
How should a handyman business keep the record straight on this, job by job?
You keep it straight by looking at your own data on every worker and every job, not by relying on what you remember agreeing to when you first took someone on.
For a handyman and property maintenance business, the picture changes constantly. A subbie doing small jobs for one property manager this month might be picking up a steady maintenance round from a real estate agency the next, working your hours, using your van stock, and taking direction on the job list the same way an employee would. A data first view of who worked which job, who set the hourly rate or minimum charge, who covered travel time, and who supplied the tools, shows you where a working relationship has drifted, instead of you finding out when a dispute lands.
This is where AI agents can carry work a handyman business owner would otherwise push to the end of the quarter. An AI agent is software that does a job the way you would, with your prices, wording and rules, and here that can mean quietly checking each subbie's pattern of bookings, call backs and inspections against the factors the ATO and Fair Work actually weigh up, and flagging it for you before it becomes a tax, super or workers compensation problem rather than after. A second AI agent can keep the paperwork for each contractor, their agreement, ABN details and insurance, up to date as jobs are booked, so the record is ready the day someone asks for it instead of being pulled together from memory.
Where can you check the current rules?
- ATO: Hiring a new worker, how to classify a worker as employee or contractor, and which roles are always employees.
- ATO: Employee or independent contractor, the control, equipment and delegation factors.
- Fair Work Ombudsman: Independent contractors, which test applies to which type of business.
- Fair Work Ombudsman: Contractors in building and construction, the ACT and Northern Territory position, and opting out.
- Safe Work Australia: Coverage of contractors and labour hire workers, how workers compensation cover for contractors differs by state and territory.
- ATO: Difference between employees and contractors, companies, trusts and partnerships as contractors.
- business.gov.au: Employee or contractor?, common myths, including the ABN myth.
- Fair Work Ombudsman: Independent contractor changes, the sham contracting test and the reasonableness defence.
How does Data First Coaching approach this?
Data First Coaching, built by Greg Allan from running his own trade business, starts from the handyman business's own job and pay records rather than a description of how things are meant to work. The Trade Business Intelligence looks at who is actually doing each job, how they are paid and directed, and whether that pattern has quietly moved from contracting toward employment, because that is usually where this problem really starts. The how of setting that up, including the agents that keep the record current, is worked through inside the Academy, with members, because the Trade Business Intelligence is powered by every member and the Academy is for owners who are open minded, innovative and willing to share what they learn.
