Mastering Subcontractor vs Employee Classifications

For many trade business owners, bringing on extra hands is essential to handle larger projects. However, the distinction between a contractor and an employee is not just about what you call them in your head; the law looks at the reality of the working relationship.

Why the distinction matters

Getting this wrong can lead to significant financial risk. If the ATO determines your contractor is actually an employee, you could be liable for unpaid superannuation, payroll tax, and workers' compensation premiums, plus heavy interest and penalties.

• The business has control over how, when, and where the work is performed.
• The worker does not provide their own equipment or tools to complete the job.
• The worker cannot delegate or subcontract the work to someone else.
• The worker is paid a regular wage rather than on a per-project basis.

1. Review the ATO’s online 'Employee or Contractor' decision tool.
2. Ensure your written agreements clearly reflect the nature of the engagement.
3. Ask your accountant to review your current contracts for high-risk clauses.
4. Keep records of ABNs and invoices if they are truly contractors.