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

Why does this catch out so many electrical businesses?

Many electrical businesses get this wrong without meaning to. A licensed electrician is paid against an invoice, has an ABN, and is called a subcontractor on the paperwork, yet the day to day arrangement looks nothing like one. The Fair Work Ombudsman is clear that calling someone a contractor does not make them one if the real relationship is employment, and the test for sham contracting has tightened.

Picture an electrical contracting business that takes on a sparky for a run of switchboard upgrades and new home fit-offs. The sparky has an ABN, invoices for each job, and is called a subcontractor. But they work the same hours every week, drive the company van, use the business's tools, sign off under the owner's compliance certificate, and can't send a mate to finish a rough-in in their place. On paper it looks like a subbie arrangement. Under the Fair Work Ombudsman's whole of relationship test, it may not be one at all.

The Fair Work Ombudsman also changed the defence available in sham contracting claims. Previously an employer needed to show they were not reckless in calling someone a contractor. Now, under the independent contractor changes, an employer has to show they reasonably believed the worker was genuinely a contractor at the time. A belief based on memory, or on what the business has always done, is a harder position to defend than one backed by records.

What test actually decides whether your sparky is a subcontractor or an employee?

The test that applies to your business looks at the whole of the relationship, not any one clause in a contract. The Fair Work Ombudsman weighs up control over how the work is performed, who carries financial risk, who supplies tools and equipment, whether the worker can delegate the job to someone else, and whether the work is expected to keep going.

If your sparky can't ask another licensed electrician to turn up and do the service call in their place, that points toward employment. The Fair Work Ombudsman's own guidance on the whole of relationship test treats an employee as generally required to do the work themselves, where a genuine contractor can usually send someone else. Who owns the test and tag gear, who carries the risk if a job goes wrong, and who decides the hours worked on a maintenance contract all feed into the same picture.

There is one carve out worth knowing. Where a subcontractor earns above a set income level, they can choose to opt out of this test in writing, and the earlier start of relationship test applies instead, as explained on the Fair Work Ombudsman's opting out page.

Does your business structure or your electrical licence change the answer?

Yes. Which test applies, and what your electrical contractor licence allows, both depend on how your business is set up and registered, and the licensing body in your state has its own rules about who a licensed electrician can engage.

The Fair Work Ombudsman explains that the whole of relationship test applies to constitutionally covered businesses, generally a proprietary limited company, while sole traders, partnerships and some other structures in states such as New South Wales, Queensland, Victoria, South Australia and Tasmania use the earlier start of relationship test instead, as set out on the independent contractors page. If your electrical business operates as a company, the newer test likely applies. If you run as a sole trader, it may not.

Licensing adds another layer. In Victoria, Energy Safe says a business must be registered as an electrical contractor to carry out electrical installation work for profit, and a registered contractor must not employ anyone to do that work unless they hold the right licence class or are a supervised apprentice, as explained on the Registered Electrical Contractors page. In Queensland, WorkSafe's licensing guide says a person conducting a business that includes electrical work generally needs an electrical contractor licence, though that is not required where the work is genuinely subcontracted to a licensed electrical contractor, as set out in the Electrical Licensing Eligibility Guide. Every electrician you engage, whether sparky or apprentice, needs to hold the right licence class for the work, and that sits alongside the employment test rather than replacing it.

There is a third trap. If your electrical business regularly engages more electricians than its own jobs need, so they are really on hire to other businesses rather than working on your switchboard upgrades and fit-outs, Queensland's labour hire scheme says that arrangement may need its own labour hire licence, as explained on the labour hire licensing page. That is a different question again from whether one sparky is an employee or a subbie.

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

What does your own job and pay data tell you that memory can't?

The real answer sits in your own records, not in what you remember agreeing. Timesheets, job allocations, invoices, and who supplies the test and tag gear or the van for each job show the actual pattern of control and risk, which is exactly what the whole of relationship test looks at, and that pattern can shift over a year without anyone noticing.

An electrician who started as a genuine subbie on a single switchboard job can end up working full weeks for you alone, using your tools, under your compliance certificate, without the paperwork ever being updated. Checking that from memory at tax time is how electrical businesses get caught out. Checking it data first, from the actual pattern of hours, invoices and job allocation as it happens, catches the drift while it is still easy to fix.

This is where AI agents can help. An AI agent is software that does a job the way you would, using your prices, your wording and your rules, and in this case that means watching the pattern in your own job and pay data rather than you having to remember it. AI agents can flag when a subcontractor's hours, exclusivity or tool supply start looking more like an employee's, so you can have the licensing and compliance conversation before a regulator has to have it for you.

Where can you check the current rules?

• Whole of relationship test - the Fair Work Ombudsman's main test for telling a subcontractor from an employee.
• Independent contractor changes - how the Fair Work Act's employment definition and sham contracting defence changed.
• Independent contractors - which test applies to which business structure and state.
• Opting out of the whole of relationship test - how a higher earning subcontractor can choose the other test.
• Contractors in building and construction - common myths about contractor status in the construction and trades sector.
• Registered Electrical Contractors - Energy Safe Victoria's rules for who a registered electrical contractor can employ.
• Electrical Licensing Eligibility Guide - WorkSafe Queensland's rules on who needs an electrical contractor licence.
• Labour hire licensing for electrical contractors - when supplying electricians to other businesses needs its own labour hire licence.

How does Data First Coaching approach this?

Data First Coaching starts by looking at how work actually moves through your electrical business: the hours a subcontractor works, which jobs they invoice for, whose van and tools turn up on site, and whose compliance certificate goes on the paperwork. That pattern, read from your own data through the Trade Business Intelligence and against what has shown up across other electrical businesses, usually shows whether a subbie arrangement has quietly become an employment relationship, long before a regulator asks the question. Greg Allan built this approach from running his own trade business, and the how of setting it up for your electrical business is worked through inside the Academy, with members who are open minded, innovative and willing to share what they learn, because the Trade Business Intelligence is powered by every member.