How does a plumbing business tell a subcontractor from an employee in Australia?

How do you tell if your plumber is a subcontractor or an employee?

You work it out by looking at the real substance of the relationship, not the invoice or the ABN on it. According to the Australian Taxation Office, you need to determine whether your worker is serving in your business, performing their work as part of it, or running their own plumbing business and supplying a service to yours (Difference between employees and independent contractors). The Fair Work Ombudsman calls this the whole of relationship test, and says it looks at the real substance, practical reality and true nature of the relationship rather than what any contract says on paper (Independent contractors).

No single factor decides it on its own. Both bodies point to the same kind of things: who controls how the work gets done, who carries the risk if a job goes wrong, who supplies the tools and the van, whether the plumber can subcontract the work on to someone else, how the hours are set, and whether the arrangement is expected to keep running indefinitely. A plumber who quotes their own backflow testing jobs, turns up with their own drain camera and jetter, can send someone else to clear a blocked drain on their behalf, and wears the cost of fixing a leak they caused, looks like a subcontractor. A plumber who works the callout roster you set, drives your van, uses your tools and gets paid an hourly rate looks like an employee, whatever the paperwork between you says.

Why does this question actually decide your margin, not just the law?

Many plumbing business owners treat this as a legal tick box, when it runs straight through the job costing without them noticing. A subcontractor who prices a bathroom renovation or a hot water replacement keeps their own markup, so their invoice is the whole cost of that part of the job. An employee's wage, super and on-costs all sit inside the business, and so does whatever markup the owner puts on their work. If both are booked against the job the same way, the cost of sales is wrong, and so is the gross profit margin it produces.

A strata maintenance contract can look like it's running at a healthy margin on paper while actually losing money once the employed plumber's real cost, including the hours spent driving between properties and chasing a compliance certificate, is counted properly. What looks like a pricing problem on a blocked drain callout or a rough-in job is often a classification problem sitting one level underneath it.

What changes in your books when you bring a plumber in-house instead of using a subbie?

When you use a subcontractor, their markup stays with them, and your cost of sales is simply what they invoice you for the job, whether that's clearing a blocked drain or doing the rough-in on a new bathroom. When you bring that same plumber on as an employee instead, their wage and the overhead that goes with them, their share of the van, tools and insurance, sits inside your business, and so does the markup on their work; you now hold both sides.

That's not automatically better or worse, but it changes what your gross profit margin is actually measuring. It only tells the truth if non-billable hours, apprentice training time, callout travel, and general overhead are tracked separately from billable job time, rather than spread evenly across every job on the board.

Does your plumbing licence or workers compensation cover change who counts as an employee?

Yes, in places, and it varies by state. In Queensland, the QBCC says a subcontractor working for a licensed trade contractor generally doesn't need their own licence, because the licensed contractor carries the responsibility, but anyone personally performing or supervising plumbing, drainage or gasfitting work still needs an occupational licence regardless of how they're engaged (When you need a licence). The Fair Work Ombudsman is clear on one point that doesn't vary by state: an apprentice is an employee learning their trade under a formal training contract, and someone working towards a qualification this way can't be engaged as a contractor (Contractors in building and construction).

Workers compensation cover runs its own test again, state by state. WorkSafe Queensland looks at things like whether the contractor can subcontract the work, is paid against a quote, and supplies their own tools without an allowance (Who your policy needs to cover). In New South Wales, icare runs a similar test to distinguish a worker from a contractor for workers compensation (Classifying workers or contractors), and in Western Australia, WorkCover says a person can still be covered as a worker under a contract of service even if they hold an ABN and call themselves a contractor (Workers compensation insurance for contractors). Safe Work Australia's comparison table shows this coverage question is answered differently state by state (Table 4.1b: Coverage of contractors and labour hire workers).

This is general information, not legal, tax or employment advice. Check your own situation with the body named here or a qualified adviser.

How can AI agents help you keep this straight without losing track of your margin?

AI agents are software that does a piece of your office work the way you'd do it yourself, using your prices, your wording and your rules, except they never forget and they never fall weeks behind. Used here, AI agents can hold the wage, overhead and invoice figures for every plumber working on your jobs, subcontractor or employee, and keep your cost of sales and gross profit margin honest on a blocked drain callout, a hot water replacement or a strata maintenance contract, instead of everyone guessing at the end of the quarter. That's the data first difference: the numbers come from what actually happened on the job, not from memory of how the quote felt at the time.

Picture a plumber running blocked drain callouts, hot water replacements and a handful of strata maintenance contracts, who can't get an accurate cost of operations figure. Non-billable hours, driving between jobs, chasing parts, sorting a compliance certificate, were loading a heavy overhead cost onto every job, so work that should have been profitable kept looking like a loss. Taking those same hours out altogether swung the figure so low it was obviously wrong too. An AI agent pulled the actual wage and overhead figures straight from the business's own live data and worked out the true cost of running the business, with billable hours properly accounted for. Overhead and non-billable time now sit in their own bucket instead of being spread across every job, and the agent keeps that figure current, whichever plumber, employee or subbie, is on the tools.

Where can you check the current rules?

• Difference between employees and independent contractors - the ATO's test for whether a worker is serving in your business or running their own.
• Independent contractors - the Fair Work Ombudsman's whole of relationship test and the factors it weighs.
• Contractors in building and construction - the Fair Work Ombudsman on contractors in residential building, including apprentices.
• When you need a licence - the QBCC on when a subcontractor or employee needs their own occupational licence in Queensland.
• Who your policy needs to cover - WorkSafe Queensland on the traits of a contractor for workers compensation cover.
• Classifying workers or contractors - icare NSW on distinguishing a worker from a contractor for workers compensation.
• Workers compensation insurance for contractors - WorkCover WA on when a contractor is still covered as a worker.
• Table 4.1b: Coverage of contractors and labour hire workers - Safe Work Australia's state by state comparison.

How does Data First Coaching approach this?

Data First Coaching starts from your own job and pay data, through the Trade Business Intelligence, to see how every plumber working on your jobs, subcontractor or employee, is actually costed against the work they produce, not just how they're labelled. Greg Allan teaches that the choice changes who holds the markup: “you don't have to pay a subcontractor and put a mark up on it, you take the mark up.” That's the real question sitting behind the legal one, and it's often where the margin problem starts. The how of setting that costing up, agent by agent, job by job, 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.