The Contractor on Your Books Might Now Be an Employee

Digging Deeper

What the new test actually asks

The employee or contractor test changed on one date, 26 August 2024. From that day, section 15AA of the Fair Work Act sets out how to read the words employee and employer. The test is the real substance, practical reality and true nature of the relationship. In plain terms, you weigh the whole relationship, not one clause in a contract.

This reversed the position set by two High Court decisions in 2022. Those cases had made a comprehensive written contract close to decisive. For a few years, a well-drafted agreement gave real comfort. The new test brings back the broader, whole-of-relationship approach.

The contract still matters. It is part of the picture. It is no longer the whole picture. What happens day-to-day now carries real weight when you decide whether someone is an employee or contractor.

Courts and the Fair Work Ombudsman look at practical factors, including:

• Control. Who decides how, when and where the work is done.

• Whose business. Does the worker run their own business, or work inside yours?

• Delegation. Can the worker pay someone else to do the job, or must they do it personally?

• Tools and equipment. Who provides the rooms, gear, and systems?

• Payment. Is the person paid for a result, or for their time and effort?

• Hours and continuity. Do you set the hours, and is the work ongoing?

• Risk. Who carries the commercial risk and the chance of profit?

No single factor decides it. You weigh them together. A worker can tick boxes on each side. The employee or contractor answer sits where the balance falls once you look at the real substance.

Why allied health sits squarely in the frame

Allied health runs on flexible arrangements. Clinics engage sessional and visiting practitioners. Practitioners rent rooms, share administration and bill under the practice name. Some work across several clinics. Others work almost full time in one.

That last group is where the employee or contractor risk gathers. A physiotherapist who works set days in your clinic, uses your rooms and equipment, sees the patients you book, and cannot send a substitute, starts to look like an employee. The ABN and the contractor agreement do not settle the employee-or-contractor question on their own.

NDIS- and Medicare-funded work adds another layer. Demand is strong, practices grow fast, and arrangements often get set up quickly. It is easy to carry an informal contractor model for years without testing whether it still holds. Every practice should be able to answer the employee-or-contractor question for each person on its books, and the new law is a good reason to check now.

The real cost of getting it wrong

A wrong employee or contractor call is not a paperwork slip. It has a price, and the price has grown.

If a contractor is found to be an employee, you can face:

• Back-paid entitlements. Annual leave, personal leave, notice and redundancy, often across several years.

• Unpaid superannuation. Plus the superannuation guarantee charge, interest and an administration fee.

• Unfair dismissal exposure. A reclassified worker may gain access to unfair dismissal.

• PAYG shortfalls. Tax that should have been withheld.

• Sham contracting penalties. For misrepresenting employment as a contract.

Sham contracting is the sharp edge of the employee-or-contractor rules, and it deserves its own note. From 27 February 2024, the defence changed. An employer used to escape liability by showing they were not reckless about a worker’s status. Now they must show they reasonably believed the person was a contractor. That is a higher, more objective bar. Maximum civil penalties for sham contracting also rose sharply, reaching into the hundreds of thousands of dollars for larger businesses.

For a small allied health practice, even one reclassification can mean a bill that far exceeds the cost of getting advice early.

Superannuation is a separate question.

Here is a trap worth flagging. The Fair Work test is not the super test. They are different rules, with different histories.

Section 15AA determines whether an employee or contractor is answerable under the Fair Work Act. Superannuation is defined in the Superannuation Guarantee (Administration) Act 1992. Under that Act, a contractor paid wholly or principally for their labour is treated as an employee for super. An ABN does not change this.

So the answer for employees or contractors can differ by purpose. A worker can be a contractor for one rule and an employee for another. You might owe a genuine contractor superannuation because the contract is mainly for their personal labour, even if they are a contractor in every other sense. The super rate is now 12 per cent, so the amounts add up quickly.

One practical point. If you engage a practitioner through their company, trust or partnership, rather than as an individual, the labour rule for super generally does not apply. Structure matters, so check how each arrangement is set up.

The opt-out for high earners

There is a narrow exception. A contractor who earns at or above the contractor high income threshold can opt out of the new Fair Work test. From 1 July 2026, that threshold is $190,100 a year. Where a valid opt-out is in place, the older contract-based approach applies instead.

Most allied health contractors will sit below that figure, so the exception will rarely help a clinic. The employee or contractor test still applies to almost everyone. It is worth knowing, but it is not a shortcut for the average practice.