A Tradie's Guide to Correctly Classifying Your Workforce
23 September 2026 · 6 min read · By Heaney Accounting
Why Classification Matters
Hiring help is a big step, but treating a person as a contractor when they are legally an employee can lead to massive tax bills and penalties. The ATO looks at the reality of the work arrangement, not just the contract label.
- Who controls how, when, and where the work is performed?
- Does the worker bring their own specialized tools or use yours?
- Can the worker sub-delegate the work to others?
- Are they paid based on an hourly rate or a fixed quote?
Warning: Using an incorrect classification can make you liable for unpaid Superannuation Guarantee payments, PAYG withholding, and workers' compensation premiums dating back years.
Setting Up for Success
- Always use written agreements for all subcontractors.
- Review the ATO’s online determination tool before onboarding.
- Document why you chose an employee or contractor arrangement.
- Regularly audit your payroll to ensure obligations are met.
When in doubt, it is always safer to treat a worker as an employee. If you want to engage someone as a contractor, ensure they truly operate as an independent business and aren't reliant solely on your work.
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