Mastering Subcontractor Payment Rules and Tax Obligations
25 October 2026 · 6 min read · By Heaney Accounting
Many tradies fall into the trap of thinking anyone they pay is automatically a subcontractor. Getting this wrong can lead to massive tax bills and penalties from the ATO.
The Four Point Test for Workers
- Check if they provide their own equipment and tools for the job.
- Assess if they can delegate the work to someone else.
- Determine if they are paid for a finished result rather than an hourly wage.
- Check if they are responsible for their own insurance and repairs.
If a worker is actually an employee in disguise, you are legally required to pay their superannuation and withhold PAYG tax.
Pro Tip: Always keep a signed contract on file that explicitly states the nature of the relationship and the subcontractor's ABN details.
Finally, ensure you are collecting a valid tax invoice for every payment made to keep your own bookkeeping clean and audit-ready.
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