The ATO and Fair Work tests
Subcontractor Or Employee?An ABN does not settle it, and super can be owed anyway.
Somebody told you that if they have an ABN and they invoice you, they are a subcontractor and the rest is their problem. That is the single most expensive piece of advice in the trade industry. The ATO position is that if you pay someone mainly for their labour they are an employee for superannuation purposes, ABN or no ABN, and the Fair Work definition of employment changed on 26 August 2024. This page separates the questions, gives you the actual tests, and tells you what to write down.
How owners end up here
Sound Familiar?
You were told to put them on an ABN
It came from someone you trust. Another owner, a mate at the wholesaler, maybe a bookkeeper years ago. Put them on an ABN, they invoice you, no super, no leave, no payroll, and if it goes bad they just stop coming. Half the trade industry runs on that sentence and it is not a description of the law.
The arrangement drifted and nobody looked at it again
It might even have been right at the start. He had his own gear, his own jobs, he came in for a fortnight on a big one. Two years later he is on your site five days a week, in your ute, on your tools, doing what you tell him, and he has not worked for anybody else since. Nothing was ever signed to change that. It changed anyway, because what counts is what actually happens.
Now somebody has used the word super, and you are doing sums at midnight
A subbie asks about super. Or one leaves badly and mentions Fair Work. And you start working out what two years of it would come to, on top of whatever a penalty looks like, and you cannot ask anybody without admitting you never checked. That is the position this page is written for, and the answer is almost always better than the one you are imagining at midnight.
Nobody sets out to do this. It happens because the arrangement was set up in a busy week, described in one sentence by somebody who was guessing, and never looked at again while the actual working relationship quietly turned into something else.
The answer most owners have wrong
Yes, Super Can Be Owed To A Subbie With An ABN.
The ATO position is that if you pay an independent contractor mainly for their labour, they are an employee for superannuation guarantee purposes, and it does not matter whether they have an Australian business number. Mainly for their labour means more than half the dollar value of the contract is labour rather than materials and equipment, that you are paying for their personal skills rather than for a specified result, and that they have to do the work themselves and cannot send somebody else. If your contract is with a company, a trust or a partnership, you do not pay super for the worker they send, because that entity carries the obligation. If your contract is with an individual and those three things are true, the super is yours to pay, quarterly, into their fund. Whether they are also an employee for leave and unfair dismissal is a separate question under a different law, and it changed on 26 August 2024.
The tests
Work The Arrangement Out In Seven Steps.
Two different laws, two different tests, and one worker can land differently under each. Almost every page you will read on this merges them into a single verdict, which is why so many owners believe a settled question is settled the other way.
Ask what you are actually buying: a result, or a person
This is the question underneath every test. Are you paying for an outcome that somebody else has priced and taken the risk on, or are you paying for a person to turn up and do what you need doing? A quote to install a bathroom for a fixed price, done in their own time with their own gear, and worn by them if it takes twice as long, is buying a result. Paying a bloke for the hours he is on your site is buying a person. Everything below is a formalisation of that.
Run the superannuation test first, because it has three limbs and it catches most trade arrangements
The ATO says a contractor is an employee for superannuation guarantee purposes where the contract is mainly for their labour, meaning more than half the dollar value of the contract is labour rather than materials and equipment; where you are paying for their personal labour and skills rather than for a specified result; and where they have to do the work themselves and cannot delegate it to somebody else. Read those three against your actual arrangement, not against what the invoice looks like.
Accept that the ABN and the invoice change nothing
The ATO says it in one line: it does not matter if the contractor has an ABN. business.gov.au lists the same belief as a myth, alongside the ideas that an invoice makes somebody a contractor, that short-term work does, that everybody in the industry doing it makes it right, and that a written agreement saying contractor settles it. Those five beliefs are most of what the trade industry thinks the law is. None of them is a test.
Check who the contract is actually with, because this is the real distinction
If you contract with a company, a trust or a partnership, you do not pay superannuation for the person that entity sends to do the work. Their own entity has that obligation. If you contract with an individual, even a sole trader with an ABN, and the three limbs above are met, the superannuation is yours. That is the line that decides most trade cases, and it is why "he has a company" is a materially different situation from "he has an ABN".
If super is owed, work out the labour part and pay it into their fund
Superannuation is calculated on the labour component of the contract, not the whole invoice. Leave out payments for materials and equipment, overtime paid at overtime rates, and GST. If the contract does not split it out, the ATO accepts market value having regard to normal industry practice. Two things people get wrong here: paying the worker extra cash instead does not count as a superannuation contribution, and if they are entitled to it they are generally entitled to choose their own fund, which you must offer within 28 days of their start date.
Now do the Fair Work question separately, and check which test applies to your entity
Employment rights are a different law with a different test. From 26 August 2024 the whole of relationship test looks at the real substance and practical reality of the arrangement, including how it works in practice rather than only what the contract says, weighing control over how the work is done, financial responsibility and risk, who supplies the tools, whether the work can be delegated, the hours, and whether there is an expectation of work continuing. But the whole of relationship test generally applies only to constitutionally covered businesses. If you are a sole trader, a partnership or another unincorporated business in New South Wales, South Australia, Queensland, Victoria or Tasmania, you are a state referred business and you use the start of relationship test instead. Find out which one you are before you read anything else about the 2024 changes.
Write down what you decided and why, and keep it with the contract
Fair Work is explicit that they cannot decide whether a given worker is a contractor or an employee, and neither can we. What you can do is make the decision deliberately: note which test you applied, what the arrangement actually looks like against each factor, and what you concluded, then diarise a review. An owner who can show a reasoned position from the time is in a completely different place from an owner who can only say nobody ever raised it. If the arrangement looks marginal, that is the point to spend an hour with an employment lawyer or your accountant rather than the point to hope.
The checklist that is not a checklist
Five Things That Do Not Make Somebody A Subcontractor.
business.gov.au publishes these as myths. Between them they are most of what the trade industry believes the law to be.
Having an ABN
An ABN takes minutes to get and is not a test of anything. The ATO says plainly that it does not matter whether the contractor has one when working out superannuation.
Sending you an invoice
An invoice describes how money moves, not what the relationship is. Employees have been invoicing in this industry for decades and it has never changed their status.
The work being short term
A fortnight on one job does not make somebody a contractor, and years on your site does not automatically make them an employee. Duration is one factor among several.
Everybody in the trade doing it
Industry practice is not a defence. It is the reason the practice is so widespread that regulators have published myth-busting pages about it.
A written agreement that says contractor
Since 26 August 2024 the Fair Work test looks at the real substance and practical reality of the relationship, including how the contract is performed in practice, not only what it says.
And one thing that genuinely does matter
Who the contract is with. Contracting a company, trust or partnership is a materially different position from contracting an individual with an ABN, and it is the distinction that decides most trade cases.
Worth knowing
What The Regulators Actually Say.
The ATO position is that if a business pays independent contractors mainly for their labour, meaning more than half the dollar value of the contract is for their labour, those workers are employees for superannuation guarantee purposes, and it does not matter whether the contractor has an Australian business number.
A new definition of employment took effect in the Fair Work Act on 26 August 2024, requiring the real substance, practical reality and true nature of the working relationship to be considered, including how the contract is performed in practice rather than only what it says.
A business incorrectly telling an employee that they are a contractor is called sham contracting and it is illegal, and having an ABN, issuing invoices, working short term, or signing a written agreement that says contractor does not by itself make a worker a contractor.
A business that gets 50 per cent or more of its income or activity from building and construction services and pays contractors must also report those payments to the ATO in a taxable payments annual report by 28 August each year.
The reason this happens
Nobody Chooses This. They Grow Into It.
Every one of these arrangements was set up in a busy week by an owner who needed hands on a job and had nobody to ask. The fix is not a better contract template. It is knowing how to bring people on, price the work so you can afford to do it properly, and run a crew on purpose. That is the part we do.
The obligation underneath it
You Also Have To Report What You Paid Them.
Separately from superannuation, a business that gets half or more of its income or activity from building and construction and paid contractors during the year has to lodge a taxable payments annual report by 28 August, naming every contractor with their ABN and the total paid including GST. Different test, different law, hard annual deadline, and most owners have never heard of it until the year they get a letter.
Check the 28 August deadlineFree tools, no sign-up
Subbie Or Put Somebody On? Price Both.
Most of these arrangements exist because subcontracting felt cheaper than employing. Work out whether it actually is, with your own figures.
Charge-out rate calculator
What an hour has to be sold for once overheads, unbillable time and real profit are in it. The number a subbie rate should be compared against.
Apprentice cost calculator
The all-in cost of putting somebody on properly, including on-costs and the supervision time nobody prices.
Your trade
Hiring And Team, In Your Trade.
The tests on this page are the same in every trade. What differs is the award you are under, what a subbie in your trade is normally engaged to do, and what a crew of your own would cost to run.
Electricians
Hiring and team
Plumbers
Hiring and team
Builders
Hiring and team
Carpenters
Hiring and team
HVAC Technicians
Hiring and team
Roofers
Hiring and team
Landscapers
Hiring and team
Painters
Hiring and team
Tilers
Hiring and team
Concreters
Hiring and team
Solar Installers
Hiring and team
Plasterers
Hiring and team
Questions
Subcontractors And Super, Answered.
Do I have to pay super to subcontractors?
Can a worker with an ABN still be an employee?
What is the difference between a subcontractor and an employee in Australia?
What changed for contractors under the Closing Loopholes laws?
What is sham contracting?
Can I just pay them extra instead of paying their super?
My subbie works only for me, five days a week, on my tools. Is that a problem?
Do I have to offer a subcontractor a choice of super fund?
Do I have to report what I pay my subbies to the ATO?
Is this page legal advice?
Check It Now, Not When Somebody Asks.
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