Australia — Worker Classification

Australia's worker classification framework underwent a fundamental shift on 26 August 2024 when the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 inserted section 15KA into the Fair Work Act 2009, codifying a new whole of relationship test for most national-system employers. This test determines whether a worker is an employee (entitled to minimum wages, paid leave, unfair dismissal protection, and other Fair Work Act protections) or an independent contractor (self-employed, outside the Act's scope).

## Scope: constitutionally covered businesses

The whole of relationship test applies to constitutionally covered businesses engaging workers on or after 26 August 2024. Constitutionally covered businesses include proprietary limited companies (Pty Ltd), foreign corporations, trading or financial corporations formed within the Commonwealth, Commonwealth agencies, bodies corporate incorporated in a territory, and businesses conducted principally in a territory or Commonwealth place. The test does not apply to sole traders, partnerships (unless the partnership is itself a corporation), or most state government employees. For work performed before 26 August 2024, constitutionally covered businesses apply the start of relationship test (the common-law contract-primacy approach established by the High Court in 2022).

## The whole of relationship test: real substance, practical reality, and true nature

Section 15KA directs decision-makers to determine employment status by considering "the real substance, practical reality and true nature of the relationship" between the parties. The test is multi-factorial and examines both the terms of any contract (written, verbal, or a mix of both) and how the contract is performed in practice. The Fair Work Ombudsman's guidance identifies key factors:

• Control: Does the business direct how, when, and where the work is done, or does the worker have autonomy?
• Integration: Is the worker integrated into the business (works exclusively or primarily for one client, uses the business's equipment, presents as part of the business's workforce), or does the worker operate independently?
• Financial risk: Does the worker bear entrepreneurial risk (invoices multiple clients, owns tools and equipment, can profit or loss), or does the business bear all operating costs?
• Ability to delegate or subcontract: Can the worker send someone else to do the work, or must the worker perform it personally?
• Basis of payment: Is the worker paid by the hour, week, or salary (employee indicator), or by milestone, project, or quoted fee (contractor indicator)?

No single factor is determinative. A written contract labeling the worker a "contractor" does not override the practical reality if the day-to-day relationship exhibits employee characteristics. Conversely, a contract that grants the business extensive control, prohibits delegation, and provides tools and equipment may establish an employment relationship even if both parties intended an independent-contractor arrangement.

## High-income opt-out

Workers earning above the contractor high income threshold—set by regulation at $183,100 for the 2025–26 financial year (1 July 2025 onward)—may opt out of the whole of relationship test by notifying the business in writing. If an opt-out is lodged, the start of relationship test (contractual-terms primacy, per the 2022 High Court decisions) applies instead. The worker may later revoke the opt-out. The threshold is indexed annually.

## Relationship to other legislation

The section 15KA definition applies only for Fair Work Act purposes (minimum wages, the National Employment Standards, modern awards, unfair dismissal). It does not alter the meaning of "employee" or "contractor" under:

• Superannuation Guarantee (Administration) Act 1992 (which has an extended statutory definition at section 12(3) covering contracts "wholly or principally for the labour of the person");
• Pay As You Go (PAYG) withholding rules (administered by the Australian Taxation Office);
• Workers' compensation legislation (state- and territory-based, with varied statutory tests);
• Work Health and Safety Act 2011 (which defines "worker" broadly to include most contractors performing work).

A person may therefore be classified as an employee under the Fair Work Act and entitled to annual leave and unfair dismissal protection, yet classified as a contractor for superannuation or tax purposes—or vice versa.

## Sham contracting

Section 357 of the Fair Work Act prohibits an employer from misrepresenting an employment relationship as an independent contracting arrangement. From 27 February 2024, the statutory defense shifted from a "recklessness" standard to a reasonableness test: to defend a sham-contracting allegation, the employer must prove it reasonably believed the worker was a contractor at the time the representation was made. Penalties for sham contracting are civil, enforced by the Fair Work Ombudsman.

Source: Fair Work Act 2009, s 15KA Source: Fair Work Ombudsman — Whole of relationship test Source: Fair Work Ombudsman — Independent contractor changes Source: Department of Employment and Workplace Relations — Meaning of 'employee' and 'employer' in the Fair Work Act 2009

A worker may be classified as an independent contractor under the Fair Work Act 2009 yet still trigger mandatory superannuation contributions under a parallel and broader test in the Superannuation Guarantee (Administration) Act 1992 (SGAA). This cross-system divergence is a major practical trap for businesses engaging contractors in Australia.

## The SGAA section 12(3) deemed-employee rule

Section 12(3) of the SGAA provides: "If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract." A person deemed an employee under this provision is entitled to superannuation guarantee (SG) contributions at the statutory rate, even if they are a genuine independent contractor under common law or under the Fair Work Act's whole-of-relationship test.

The Australian Taxation Office (ATO) administers and enforces superannuation guarantee compliance. Employers who fail to make the required quarterly contributions must pay the superannuation guarantee charge (SGC) to the ATO, which includes the unpaid superannuation, nominal interest, and an administration fee. The SGC is not tax deductible. The ATO may also impose penalties of up to 200% of the charge, and issue director penalty notices making company directors personally liable for unpaid amounts.

## The three-part test: contract, wholly or principally for labour, and work performed

The ATO states that section 12(3) has three elements:

1. There must be a contract (written, oral, or a hybrid of written and oral terms).
2. The contract must be wholly or principally "for" the labour of the person.
3. The person must work under that contract.

The critical element is whether the contract is wholly or principally "for" labour. The ATO focuses on the contractual rights and obligations, not on how the contract was performed in practice—unless the contract is a sham, unenforceable, or has been varied by conduct.

## What the ATO looks for: payment for personal labour, no delegation, and payment by time

The ATO provides practical guidance on when a contractor is engaged wholly or principally for their labour. Make super contributions for independent contractors if you pay them:

• under a contract that is mainly for their labour (more than half the dollar value of the contract is for their labour, rather than for materials, equipment, or a separately costed deliverable);
• for their personal labour and skills (payment is not dependent on achieving a specified result); and
• to perform the contract work personally (the work cannot be delegated to someone else).

If all three conditions are met, the contractor is a deemed employee for superannuation purposes, even if they hold an Australian Business Number (ABN) and invoice the principal as an independent business.

Key indicators supporting a superannuation obligation:

• Payment by time worked: The contractor invoices on an hourly, daily, or weekly basis rather than by project milestone or fixed deliverable.
• No substantial capital equipment or materials: The contractor provides only hand tools or a laptop; the principal supplies workspace, major equipment, or materials.
• Personal performance required: The contract stipulates that the contractor must perform the work personally, or permits delegation only with the principal's consent (a "fettered" right).

Key indicators that section 12(3) does NOT apply:

• Contract for a result or outcome: The contractor is engaged to deliver a specific output (e.g., a completed software module, a repaired machine, a constructed deck) and bears risk if the result is not achieved.
• Use of substantial capital equipment: The contractor provides a truck, excavator, specialized machinery, or other high-value assets necessary to perform the work.
• Right to delegate or subcontract: The contract permits the contractor to send a substitute or subcontract the work without needing the principal's consent.

The ATO considers "normal industry practices" when determining whether the contract is principally for labour.

## Contract with a natural person in their individual capacity

Section 12(3) applies only when the contract is with a natural person acting in their individual capacity (including as a sole trader with an ABN). If the principal contracts with a company (Pty Ltd), trust, or partnership, section 12(3) does not apply, and the principal has no superannuation obligation to the individual performing the work. The ATO confirms: "If you enter into a contract with someone other than the person who'll actually provide the labour—for example, with a company, trust or a partnership—you don't pay super to the person providing the labour."

The existence of an ABN or an invoice bearing a business name does not, by itself, mean the contractor is operating through an interposed entity. The key question is whether the contract itself is with the individual or with a separate legal entity. If a sole trader invoices using their personal ABN, the contract is with the individual, and section 12(3) may apply.

## Calculating superannuation on the labour component

When section 12(3) applies, the employer must pay superannuation on the labour component of the contract. The ATO states: "The minimum super you must pay is the super guarantee percentage of the worker's ordinary time earnings. This is the labour component of the contract."

If the contract separately itemizes labour and non-labour components (e.g., "$800 labour, $200 materials"), the employer pays SG on the $800 labour amount. If the contract does not separately identify the labour component, the ATO will accept a reasonable market value of the labour—for example, the award rate or industry standard for similar work. The employer must keep records demonstrating how the labour component was calculated (SGAA section 79).

The employer cannot discharge the obligation by paying the contractor an additional amount "for super"—the SG must be paid quarterly directly to a complying superannuation fund. The ATO states: "Paying an additional amount equal to the SG rate to the independent contractor on top of their usual pay does not count as a super contribution."

## Domestic workers: the 30-hour exemption

Section 12(11) of the SGAA provides that a person paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee for superannuation purposes. This exemption applies to individual householders engaging cleaners, gardeners, nannies, or home-care workers. If the domestic worker works more than 30 hours per week, superannuation is payable. The exemption does not apply to businesses that engage domestic workers on behalf of clients (e.g., a cleaning agency that employs cleaners and sends them to residential clients). The ATO guidance states: "A business that pays a worker to perform work of a domestic or private nature for an end-user or client will not be able to rely on the exemption in Subsection 12(11)."

## Relationship to Fair Work Act classification

Superannuation classification under section 12(3) is independent of Fair Work Act classification. The ATO confirms: "In certain circumstances, you must pay superannuation for independent contractors who are deemed to be employees for superannuation purposes."

A worker who is an independent contractor under the Fair Work Act's whole-of-relationship test (section 15KA) and therefore not entitled to minimum wages, paid leave, or unfair dismissal protection may still be a deemed employee under section 12(3) and entitled to superannuation. The reverse is also possible: a worker engaged through a corporate trustee for a family trust may be an employee under the Fair Work Act yet not trigger section 12(3) superannuation because the contract is with the trust, not the individual.

Cross-border employers establishing an Australian presence and engaging local contractors should separately analyze Fair Work Act employee vs. contractor status (for wage, leave, and dismissal obligations) and SGAA section 12(3) status (for superannuation) for each engagement. Both tests turn on the contract terms, but they ask different questions and can yield different answers.

Source: Superannuation Guarantee (Administration) Act 1992, s 12 Source: Australian Taxation Office — Super for independent contractors Source: Australian Taxation Office — Difference between employees and independent contractors

From 26 August 2024, independent contractors earning below the contractor high income threshold can apply to the Fair Work Commission (FWC) to set aside or vary unfair terms in their services contracts under a new regime in Part 3A-5 of the Fair Work Act 2009. This protection operates alongside the worker-classification rules (the whole-of-relationship test under section 15KA and the superannuation section 12(3) test) but applies only when the worker is genuinely an independent contractor. The regime gives the FWC power to rewrite one-sided contract terms relating to remuneration, hours, termination, and other workplace-relations matters, creating a substantive fairness overlay on top of the common-law freedom-of-contract baseline.

Cross-border employers engaging Australian contractors—particularly in standard-form arrangements for gig-economy platforms, consulting services, or ongoing project work—should understand this regime from day one. A contract drafted with a non-Australian contractor template or with terms standard in another jurisdiction (unilateral variation clauses, no-cause termination without notice, payment holdbacks, IP-assignment-without-additional-payment) may be challenged and rewritten by the FWC if an Australian contractor below the income threshold files an application.

## Scope: who can apply, and which contracts are covered

An independent contractor (or a union representing the contractor) may apply to the FWC for an unfair-contract-term remedy if all four of the following conditions are met:

1. The contractor is party to a services contract. A "services contract" is a contract for services that relates to the performance of work by an individual and has a constitutional connection—for example, at least one party is a constitutional corporation (a Pty Ltd company), the Commonwealth, a foreign corporation, or a body incorporated in a territory, or the work is performed mainly in a territory (ACT or NT), or the contract was entered into in a territory. Most contracts with Australian companies satisfy this test.

1. The contract was entered into on or after 26 August 2024. The regime is not retrospective. Contracts signed before 26 August 2024 are not covered by Part 3A-5; contractors earning below the threshold on pre-26-August contracts may instead apply to the Federal Court under the Independent Contractors Act 2006 for a harsh-or-unfair contract review (a separate, court-based regime with a different statutory test). The FWC has no jurisdiction over contracts entered into before 26 August 2024, regardless of how unfair the term.

1. The contractor's annual rate of earnings is less than the contractor high income threshold in the year the application is made. The threshold is set by regulation and indexed annually. For the financial year commencing 1 July 2025, the threshold is $183,100. A contractor earning at or above this amount cannot use the Part 3A-5 FWC remedy; they remain eligible for the Federal Court remedy under the Independent Contractors Act 2006. The FWC has stated that "the contractor high income threshold should not be confused with the 'high income threshold' which only applies to employees" (the employee high-income threshold for unfair dismissal is lower, currently $175,000 for FY 2024–25). The FWC and Fair Work Ombudsman have not yet issued detailed guidance on how "annual rate of earnings" is calculated—whether it is the contract rate, the actual earnings in a calendar year, or the annualized rate for part-year contracts. Practitioners should assume the FWC will look at the annualized contract remuneration in the year the application is lodged, not the prior-year tax return.

1. The challenged term would relate to a "workplace relations matter" if the contractor were an employee. The FWC can only set aside or vary terms that, if the relationship were an employment relationship, would fall within the definition of "workplace relations matters" in section 536JQ of the Fair Work Act. The Fair Work Ombudsman states that workplace relations matters include "remuneration, hours of work and termination," and "other matters that are substantially the same as matters that relate to employees or employers dealt with by or under the Fair Work Act 2009 or state or territory industrial laws." The FWC cannot vary terms relating to intellectual property ownership, confidentiality, restraint-of-trade covenants, indemnities, or dispute-resolution procedures unless those terms have a direct and substantial connection to pay, hours, or termination. For example, a clause stating "the contractor assigns all IP created under this contract without additional payment" might be challenged if the contractor argues the no-additional-payment component is part of the remuneration term, but a pure IP-ownership clause is likely outside the FWC's jurisdiction. The first FWC decision under the new regime (a 2025 case involving an independent personal-care contractor) dismissed an application seeking payment of unpaid invoices, holding that Part 3A-5 gives the FWC jurisdiction to review contract fairness, not to enforce breaches of contract or unpaid amounts—the contractor must sue for debt in a civil court.

## The statutory test for "unfair contract term" — section 536NB

When an application is made, the FWC must determine whether the challenged term is an unfair contract term by considering a non-exhaustive statutory list of factors set out in section 536NB of the Fair Work Act. The FWC guidance and commentary identify the following factors:

1. The relative bargaining power of the parties to the contract. Did the contractor have meaningful opportunity to negotiate the term, or was the contract presented on a take-it-or-leave-it basis? Standard-form platform agreements (Uber, Airtasker, Deliveroo-type contracts) will weigh heavily toward low contractor bargaining power. Individually negotiated consulting agreements with a represented contractor may weigh the opposite way.

2. Whether the contract as a whole displays a significant imbalance between the rights and obligations of the parties. The FWC examines the entire contract, not just the challenged term in isolation. A contract that gives the principal unilateral rights to vary rates, change hours, suspend the contractor without pay, or terminate without notice, while imposing strict performance standards, exclusivity, and personal-performance requirements on the contractor, is likely to show significant imbalance. The FWC will not rewrite the entire contract, but the overall imbalance informs whether a specific term is unfair.

3. Whether the contract term is reasonably necessary to protect the legitimate interests of a party to the contract. A principal may defend a term by showing it protects a genuine business interest. For example, a 7-day termination-notice clause might be defended as necessary to manage workflow continuity; a unilateral rate-variation clause might be defended (though less persuasively) as necessary to respond to market conditions. The burden is on the principal to demonstrate the term's necessity. Generic "business flexibility" arguments are unlikely to succeed without evidence.

4. Whether the contract term imposes a harsh, unjust, or unreasonable requirement on a party to the contract. This overlaps with the imbalance factor but focuses on whether the specific term is harsh in its operation. Examples from commentary and early cases: a clause requiring the contractor to work any hours directed by the principal with no minimum or maximum (harsh because it provides no predictability); a clause permitting the principal to withhold payment for 90 days after invoice without cause (unjust because it shifts all cash-flow risk to the contractor); a clause requiring the contractor to indemnify the principal for any loss arising from the contractor's work, without a materiality or negligence threshold (unreasonable in scope).

5. Whether the contract as a whole provides for a total remuneration for performing work that is less than what employees performing the same or similar work would be entitled to receive under the National Employment Standards, a modern award, or an enterprise agreement. This is a pay-floor comparison. If the contractor's effective hourly or project rate, after accounting for the contractor's own costs (equipment, insurance, superannuation), is below the minimum wage or award classification rate for an employee doing comparable work, that fact supports a finding that the remuneration term (or the contract as a whole) is unfair. The Fair Work Ombudsman and FWC have not yet specified how this comparison should be calculated (gross contractor invoice vs. net after contractor expenses? comparison to base award rate or total employee cost including super and leave loading?). Practitioners should assume the FWC will look at the all-in contractor hourly rate compared to the total award entitlement (base rate + leave loading + super) for an equivalent employee classification. A contractor paid $35/hour for delivery work when the relevant award minimum (inclusive of casual loading and super) would be $32/hour will likely satisfy this factor; a contractor paid $20/hour will not.

No single factor is determinative. The FWC must weigh all factors and form an overall judgment. The legislation directs the FWC to consider whether the term is unfair, not merely whether the contract is commercial or whether both parties agreed to it.

## Remedies: FWC may set aside, amend, or vary the unfair term

If the FWC decides that one or more terms of a services contract are unfair, section 536ND of the Fair Work Act empowers the FWC to make an order to set aside, amend, or vary all or part of the contract. The FWC cannot award compensation for past periods when the unfair term was in effect, and the FWC cannot order the principal to pay unpaid invoices (that is a debt claim for a civil court). The remedy is prospective: the FWC rewrites the contract going forward.

Typical orders might include:

• Setting aside a unilateral rate-reduction clause and substituting a term requiring 30 days' written notice and mutual agreement before any rate change.
• Varying a termination clause from "the principal may terminate at any time without cause or notice" to "either party may terminate on 14 days' written notice."
• Setting aside a clause requiring the contractor to work "such hours as the principal directs" and substituting a term specifying a minimum and maximum weekly hour range.
• Varying a payment term from "invoices payable within 90 days" to "invoices payable within 30 days of receipt."

The FWC's jurisdiction is limited to varying the terms that would relate to workplace relations matters; it cannot rewrite the entire contract or vary terms outside that scope.

## Costs and accessibility: no adverse costs orders, low-cost forum

The Fair Work Act does not provide for adverse costs orders in Part 3A-5 applications. Commentary (citing the analogous Independent Contractors Act 2006 jurisdiction) states that "costs do not follow the event and costs orders are unlikely to be made unless the application is vexatious or unreasonable." This is consistent with the general Fair Work Act rule that each party bears its own costs. The absence of an adverse-costs risk makes it low-risk for a contractor to file an application, and principals cannot credibly threaten "you'll pay our legal costs if you lose" to deter a claim.

The Fair Work Ombudsman can provide free information and informal conciliation for contractors considering an application. Unions may represent contractors in FWC proceedings. The FWC's procedural rules for unfair-contract-term applications are less formal than Federal Court litigation, and the FWC has power to resolve applications by conference, conciliation, or arbitration.

## Interaction with the Independent Contractors Act 2006

Contractors who do not meet the Part 3A-5 eligibility criteria (because the contract was entered into before 26 August 2024, or because the contractor earns at or above the high-income threshold, or because the challenged term does not relate to workplace relations matters) may still apply to the Federal Court or Federal Circuit and Family Court for a review of the contract under the Independent Contractors Act 2006. That Act permits a court to set aside or vary a services contract (or a term of a services contract) that is "unfair" or "harsh," applying a different statutory test. The Independent Contractors Act 2006 applies to all independent contractors (no income threshold) and to all contracts (including those entered into before 26 August 2024), but it requires court proceedings (higher cost, slower, risk of adverse costs orders in some circumstances).

The Fair Work Ombudsman states: "Contractors can apply to the Fair Work Commission ... if both: the services contract was entered into on or after 26 August 2024 [and] the contractor earns less than the contractor high income threshold. ... Contractors can apply to a court for a review of their services contract under the rules of the Independent Contractors Act 2006 if they think the contract is harsh or unfair. This provides different pathways for review for contractors at different income levels."

Practitioners should advise contractors on which forum is appropriate: the FWC (low-cost, accessible, limited to post-26-August contracts and below-threshold earners, limited to workplace-relations terms) or the Federal Court under the IC Act 2006 (higher cost, broader scope, no income threshold, covers all contract terms).

## Practical implications for cross-border employers

Cross-border businesses engaging Australian contractors should:

1. Review all standard-form contractor agreements used in Australia for post-26-August 2024 engagements. Identify terms that may be challenged as unfair under the section 536NB factors: unilateral variation, no-cause termination without notice, payment terms longer than 30 days, no minimum hours or work guarantee, one-sided indemnities, or rates below the employee-equivalent award floor.

1. Consider separately negotiated terms for high-value contractors. Individual negotiation (evidenced by email correspondence, multiple drafts, or the contractor's own legal review) supports a defense under the "bargaining power" and "reasonably necessary" factors.

1. Benchmark contractor remuneration against the relevant modern award. The FWC will compare contractor pay to the National Employment Standards and applicable awards. A contractor paid significantly below the employee-equivalent rate (after accounting for the contractor's own super and leave-cost burden) is more likely to succeed on an unfair-terms claim. Employers should ensure contractor rates are commercially defensible when compared to award minimums.

1. Monitor threshold changes. The contractor high income threshold is indexed annually and may rise with CPI adjustments. The Fair Work Ombudsman publishes the updated threshold each financial year (1 July).

1. Understand that this regime applies even when the worker is genuinely a contractor. Part 3A-5 does not turn contractors into employees. It gives the FWC power to vary unfair contract terms for workers who remain independent contractors under the whole-of-relationship test and who remain outside the superannuation-guarantee and Fair Work Act minimum-wage regimes. A contractor who successfully challenges a contract term under Part 3A-5 is still a contractor—just a contractor with fairer contract terms.

Source: Fair Work Act 2009, Part 3A-5 Source: Fair Work Commission — Independent contractor disputes about unfair contract terms Source: Fair Work Ombudsman — Contractor entitlements and support Source: Fair Work Ombudsman — Independent contractor changes (Closing Loopholes)

Australia's Pay As You Go (PAYG) withholding regime, administered by the Australian Taxation Office (ATO), generally requires businesses to withhold tax from employees' wages. However, in strictly defined circumstances, a business must also withhold PAYG tax from payments made to independent contractors—even when the contractor is treated as a contractor under the Fair Work Act and superannuation rules.

## When PAYG withholding applies to contractor payments

A business must withhold PAYG tax from payments to an individual contractor where:

• The contract is wholly or principally for the labour of the person (mirroring, but not identical to, the Superannuation Guarantee "deemed employee" test), and
• The contractor does not provide an Australian Business Number (ABN), or the contractor has an ABN but the arrangement is subject to a voluntary agreement for PAYG withholding (signed by both parties), or the ATO issues a labour-hire arrangement determination requiring withholding.

The ATO test focuses on whether the payment is primarily for the person's labour—as opposed to the supply of goods or the results of a contract specifying a produced outcome. Relevant indicators include "whether the individual is paid for their personal labor and skills, whether they must perform the work themselves, and whether they are paid by time rather than results." If so, and no ABN is provided, the business must generally withhold tax at the highest marginal rate. If the contractor provides an ABN, the payer does not withhold—unless both parties enter a written voluntary PAYG agreement, or the contractor works through certain labour-hire or specified entity arrangements.

## Key scenarios for cross-border and local employers

• No ABN provided: If an Australian-resident individual contractor does not supply an ABN on their invoice, the payer must withhold 47% from the payment ("no ABN withholding").
• Voluntary agreement: Businesses and contractors may agree in writing to withhold PAYG from payments, regardless of superannuation or Fair Work status. This is common for "freelance, ongoing" relationships where the contractor wishes to pre-pay tax via withholding.
• Labour-hire and specified payments: Special rules apply to payments through labour-hire firms, agencies, and certain others; see ATO tables for coverage.

## Distinction from superannuation and Fair Work rules

A contractor may be an "employee" for PAYG purposes (requiring withholding) even when they are not an employee under the Fair Work Act whole-of-relationship test, and vice versa. Likewise, the deemed-employee rule for superannuation (SGAA s12(3)) does not automatically trigger PAYG withholding unless the ABN/voluntary agreement or labour-hire criteria are met.

Foreign businesses hiring Australian contractors should:

• Insist that individual contractors provide a valid ABN;
• Use the ATO decision tool to determine withholding obligation;
• Consider voluntary agreements only for ongoing engagement where regular tax prepayment helps the contractor's cash flow.

Source: ATO — Payments to contractors Source: ATO — Voluntary agreements Source: ATO — No ABN withholding

In Australia, labour hire ("on-hire") arrangements—where a worker is engaged by a labour hire provider and placed on assignment with a host—pose distinctive worker-classification and compliance issues for both the provider and the host business.

Who is the employer? By default, the labour hire provider is the worker's employer for Fair Work Act 2009 purposes, responsible for pay, statutory leave, superannuation, and compliance with the National Employment Standards (NES), modern awards, and enterprise agreements. The host contracts with the provider, not the worker. However, under amendments commencing from late 2024 (date to be set), hosts may have additional liability for pay parity (see below).

Labour hire licensing regimes — Qld, Vic, SA In Queensland, Victoria, and South Australia, labour hire providers must be licensed under respective state statutes: for example, the Labour Hire Licensing Act 2018 (Qld). Hosts must verify that providers are licensed; engaging an unlicensed provider can trigger civil and, in some cases, criminal penalties. Providers must meet fit-and-proper person requirements and comply with reporting and conduct standards. Public registers of licensed providers are maintained by each state's regulator.

Employment rights of on-hire workers and application of modern awards On-hire workers are entitled to minimum terms under the Fair Work Act 2009, the NES, and any relevant modern award or enterprise agreement. Many awards include provisions specific to on-hire workers (e.g., Hospitality Industry (General) Award, clause 12—note: award coverage varies by sector). The Fair Work Commission confirms that on-hire workers cannot be engaged on terms less favourable than those applying to direct hires covered by the same instrument.

Workers placed by a labour hire provider may also be eligible for "casual conversion" to permanent employment under the Fair Work Act, sections 66B–66M, consistent with direct hires, if all statutory requirements are met.

"Same job, same pay" (Division 4A of Part 2-7, FWA; not yet in force) New reforms will soon require hosts with an enterprise agreement to ensure labour hire workers performing the same work as direct employees are paid at least as much as those employees. This "same job, same pay" requirement will be implemented by amendments to Division 4A of Part 2-7 of the Fair Work Act 2009, but the effective date is yet to be proclaimed (as of June 2024). Once in force, hosts will face statutory obligations to ensure pay parity, subject to specific exceptions (e.g., small business, short-term placements). Regulated arrangement orders will be available via the Fair Work Commission.

Cross-border and interstate considerations For assignments in Queensland, Victoria, or South Australia, the host must check the relevant public register (see each licensing authority) to confirm the provider’s current license, regardless of either party’s home jurisdiction. Fair Work Act protections (including any applicable pay parity requirements) extend nationally for national system employers.

Source: Fair Work Act 2009, Part 2-7, sections 66B–66M Source: Labour Hire Licensing Act 2018 (Qld) Source: Fair Work Commission — Labour hire workers Source: Labour Hire Authority Victoria — Check a provider's licence

In Australia, whether a contractor is covered for workers’ compensation does not turn on the Fair Work Act or Commonwealth definitions, but on the relevant state or territory statute. Every state and territory enacts its own criteria for who is a “worker” or “deemed worker.” These capture many sole-trading contractors who would not count as “employees” for wage, tax, or super purposes. Coverage varies in detail, but the schemes tend to apply insurance and compensation obligations to any individual (not companies or trusts) engaged mainly for their own personal labour, especially where the contractor cannot freely delegate the work or bears no significant business risk.

New South Wales (NSW): Under the Workplace Injury Management and Workers Compensation Act 1998 (NSW), s 4 and Schedule 1 extend coverage to contractors who work under a contract "for service" (not just employees under a contract “of service”). Schedule 1 explicitly brings within the Act’s coverage certain classes of contractors—such as outworkers and some drivers—if more than 80% of the contract value is for labour and the individual works in or about the business of the principal. Entity contractors (Pty Ltd, trusts) are excluded by the explicit wording of Schedule 1, which applies only to individuals. (See: s 4; Sch 1)

Victoria: The Workplace Injury Rehabilitation and Compensation Act 2013 (Vic), s 4, s 3, and Schedules 1–2, similarly cover many contractors as ‘workers’ where the contract is predominantly for their labour, with an “80% test” for income from one engager (Schedule 1, clause 9). As in NSW, this generally excludes company and trust contractors; the coverage is for contracts with individuals acting in their own person. (See: s 4, s 3, Sched 1–2)

Queensland: Workers’ Compensation and Rehabilitation Act 2003 (Qld) covers any “individual who works under a contract for their personal labour or skills” (s 11, s 12). Section 12(2) specifies the “contract of service or a contract for service” language, while s 11 defines worker to exclude a person who contracts to achieve a result and can employ another. Only individual contractors (not company or trust contractors) are within coverage.

Other states and territories: Each jurisdiction frames this slightly differently. Most follow the pattern that contracts mainly for an individual’s labour (not materials, tools, or result) and where delegation or substitution is restricted will be covered. However, exact tests and coverage for non-individual entities or non-traditional arrangements must be checked in each local statute. Unable to confirm as of 2026-06-15.

Practical consequence: Employers (including foreign employers engaging Australian contractors) must analyze contracts with individuals for workers’ compensation risk in each state/territory—coverage is broader than payroll tax, super, or the Fair Work test. Failing to arrange coverage or pay premiums for covered contractors is a compliance breach, regardless of contractor ABN or invoicing practice.

Source: Workplace Injury Management and Workers Compensation Act 1998 (NSW) s 4, Sch 1 Source: Workplace Injury Rehabilitation and Compensation Act 2013 (Vic) s 4, s 3, Sched 1–2 Source: Workers’ Compensation and Rehabilitation Act 2003 (Qld) s 11, s 12

Sections 357–359 of the Fair Work Act 2009 (Cth) create statutory prohibitions and penalties for "sham contracting"—where a business misclassifies a worker as an independent contractor, rather than an employee. These are strict compliance risks, especially for international employers unfamiliar with the Australian system.

Section 357: Misrepresenting employment as contracting It is unlawful for an employer to "represent to an individual that the contract of employment under which the individual is ... employed by the employer is a contract for services under which the individual performs work as an independent contractor" (s 357(1)). This covers both express and implied representations—what the contract says and how parties describe the relationship.

Section 357(2): Defence of reasonable belief (from 27 February 2024) As amended by the Fair Work Legislation Amendment (Closing Loopholes) Act 2023, from 27 February 2024, the defence is only available if "at the time of the representation, the employer reasonably believed that the contract was a contract for services"—a stricter test than the prior recklessness standard. Employers must now demonstrate a contemporaneous, objectively reasonable belief, not merely an absence of recklessness. Acting on up-to-date legal advice and analysing the "real substance, practical reality and true nature of the relationship" (see s 15KA) are key factors regulators and courts will consider.

Section 358: Dismissing an employee to re-engage as a contractor An employer must not dismiss (or threaten to dismiss) an employee to re-engage them as a contractor for substantially the same work. This is targeted at arrangements meant to circumvent entitlements.

Section 359: Inducing misclassification It is also unlawful to knowingly make a false statement to persuade or influence someone to enter into a contracting arrangement in place of an employment contract.

Penalties and liability A breach of these provisions is a civil remedy provision, enforceable by the Fair Work Ombudsman or the affected worker. As of July 2026, maximum penalties are indexed as follows: up to $21,840 per contravention for individuals, $109,200 for businesses with fewer than 15 employees, and $546,000 for businesses with 15 or more employees (penalty unit set at $330; see updated Fair Work Ombudsman guidance). Section 539 specifies who can bring actions, while section 550 extends liability to individuals "involved in" a contravention—including company directors and decision-makers overseas.

Practical compliance notes

• The Fair Work Ombudsman recommends keeping contemporaneous records of classification decisions, seeking local legal advice for marginal cases, and reviewing contractor engagements after legislative changes. Misclassification may also trigger backpay, superannuation, and tax liabilities beyond Fair Work Act penalties.

Source: Fair Work Act 2009, ss 357–359, 539, 550 Source: Fair Work Ombudsman — Sham contracting

The Work Health and Safety Act 2011 (Cth) (WHS Act) establishes a unified safety regime for workplaces under Commonwealth jurisdiction, including national system employers and the territories. Its reach is broader than the Fair Work Act or tax statutes: the WHS Act does not limit obligations to traditional employees, but cuts across all work relationships and extends employer duties to many forms of contracting and gig work.

Who is a "worker" under the WHS Act? Section 7 of the WHS Act defines “worker” as any person who carries out work in any capacity for a person conducting a business or undertaking (PCBU), including:

• employees,
• contractors and subcontractors,
• employees of contractors or subcontractors,
• employees of a labour hire company assigned to work for a PCBU,
• outworkers,
• apprentices or trainees,
• work experience students,
• volunteers, and
• persons prescribed by regulation.

Thus, both individual independent contractors and the employees of contracting companies are within “worker” coverage for WHS purposes, regardless of tax, super, or Fair Work classification.

Duties Owed to Contractors (ss 19, 28) A PCBU must ensure, so far as is reasonably practicable, the health and safety of (a) workers engaged, or caused to be engaged by the PCBU, and (b) workers whose activities are influenced or directed by the PCBU (s 19(1)), while those workers are at work. This means a business must provide contractors with the same safe systems of work, information, supervision, and risk minimization steps as for employees. The primary duty is not delegable—even if engaging a contractor through another entity.

Conversely, section 28 imposes a duty on workers themselves—including contractors—to take reasonable care for their own health and safety, and to comply with reasonable instructions from the PCBU.

Implications for cross-border employers Any business engaging a contractor to perform work in Australia (even remotely or sporadically) may owe PCBU duties under the WHS Act, including to overseas-based businesses with Australian operations. Ignorance of “independent contractor” status does not exempt a PCBU from obligations; all practical arrangements for Australian-based work should include WHS risk assessment and consultation, not just direct hires.

Breach of WHS duties can attract criminal and civil penalties.

Source: Work Health and Safety Act 2011 (Cth) ss 7, 19, 28

Australian state payroll tax statutes generally impose payroll tax not only on employees’ wages but also on payments to many contractors. The principal mechanism is the “relevant contract” regime, typified by section 32 of the Payroll Tax Act 2007 (NSW). Nearly all other states and territories adopt materially similar provisions, though practitioners must always check the specific statute governing where the services are performed.

Statutory scope: what is a "relevant contract"? Section 32(1) provides that, subject to statutory exemptions, a "relevant contract" exists where "a person (the designated person) during a financial year performs work for, or in connection with, any business carried on by another person (the employer) pursuant to a contract between the designated person and the employer or between the designated person and another person." Payment under such contracts is deemed to be wages—unless an exemption under subsections (2)–(7) or Schedule 2 applies. This statutory definition is deliberately broad: even genuine contracting arrangements (including sole traders, partnerships, or personal service companies) may be caught if work is performed for the business.

Key exemptions (s 32(2)-(7); Schedule 2):

• Contracts where the contractor provides services to the principal for 90 days or less in a financial year (s 32(2)(b), "90-day rule").
• Contracts where the contractor supplies services to the public generally and not to the principal exclusively (s 32(2)(d), "public offer" exemption).
• Contracts for services not ordinarily required by the principal’s business (s 32(2)(c)), or for provision of goods only (s 32(2)(a)).
• Specified classes (owner-drivers, insurance or certain commission agents, or contracts declared exempt in Schedule 2 or by regulation).

The burden of proving any exemption lies on the taxpayer (s 32(8)). If the payer cannot prove an exemption, all payments made under the relevant contract (including for time, skill, and generally for use of materials or equipment unless separately identified and exempt under regulation) are included as taxable wages for payroll tax.

Update (June 2026): Owner-driver exemption and employer-paid fuel In an important clarification, Revenue NSW updated its guidance (3 June 2026) to confirm that employer contributions to fuel costs for owner-drivers (required under the Fair Work Commission’s April 2026 Road Transport Contractual Chain Order) do not disqualify a contract from the owner-driver exemption under s 32(2)(d), provided the terms of Payroll Tax Ruling PTA 006 are met. Employers must document compliance with PTA 006 to maintain exemption eligibility. This guidance applies from 3 June 2026 and represents an alignment between industrial award obligations and payroll tax exemption administration.

Practical implications for cross-border employers: Foreign or interstate employers engaging contractors to perform work in NSW (or other states) must analyze both the factual working relationship and the contract structure. Mere presence of an ABN or contractor label is not sufficient. If caught, the employer/principal must aggregate these payments toward the annual payroll tax threshold and comply with registration and payment duties.

Most Australian states use near-identical statutory language and exemptions; see, e.g., Payroll Tax Act 2007 (Vic) Pt 3 Div 7, Payroll Tax Act 2007 (Qld) Div 7. Always confirm against the local statute, as practical treatment and regulatory interpretations may differ at the margins.

Source: Payroll Tax Act 2007 (NSW) s 32 Source: Revenue NSW — Contractors and payroll tax Source: Payroll Tax Ruling PTA 006

Independent contractors in Australia who are not eligible to challenge unfair contract terms under the new Fair Work Act regime (Part 3A-5, commencing 26 August 2024) may seek relief from “unfair” or “harsh” service contracts in the Federal Court or Federal Circuit and Family Court under the Independent Contractors Act 2006 (ICA). This regime is central for: (1) contracts entered before 26 August 2024, and (2) contractors earning at or above the contractor high-income threshold (set at $183,100 as of 1 July 2025) for contracts entered on or after that date. Post-commencement, the ICA regime operates only where the Fair Work Act route does not apply — transitional arrangements and the text of the new provisions should always be checked for evolving coverage.

Under ICA Part 3 (ss 11–18), the court can set aside, amend, or vary contracts (prospectively) if satisfied that a services contract, or a term within it, is “unfair” or “harsh.” Applicants may include the contractor, a representative organization (such as a union), or the Minister. In determining "unfairness," the statute (ICA s 15(2)) directs the court to weigh factors including:

• Relative bargaining power;
• Whether, in all the circumstances, the total remuneration is less than that of an employee performing similar work;
• Imbalances in contractual rights and obligations;
• Whether contract terms are reasonably necessary to protect legitimate interests; and
• The context at contract formation (including whether the contractor had a meaningful chance to obtain independent legal advice).

Remedies are prospective only — the court cannot award compensation for past periods when the contract operated unfairly (ICA s 16). This regime applies across all sectors, but after 26 August 2024 it is residual to the Fair Work Act regime: for example, contractors on high-value or senior consulting arrangements (above-threshold) remain eligible for Federal Court review under the ICA even for new contracts, while below-threshold post-commencement contracts are addressed by the Fair Work Commission’s new unfair-contract-terms pathway.

ICA litigation is formal, and applicants face the ordinary risk of adverse costs (i.e., if unsuccessful, they may be ordered to pay the other party's legal costs). The Federal Court’s published practice area guidance confirms: “In proceedings under the ICA each party usually pays their own legal costs, but the Court can order a losing party to pay the legal costs of a successful party.” (Federal Court of Australia website)

Practitioners should note the ICA does not convert contractors into employees; it operates solely to adjust egregiously unfair contract terms for continuing or future performance. Cross-border employers are exposed if issuing standard-form, non-negotiable agreements with one-sided economic or liability terms, but the statute’s test is fact-specific, and not all “take it or leave it” contracts breach the standard.

Source: Independent Contractors Act 2006 (Cth) Part 3, ss 11–18 Source: Federal Court of Australia — Independent Contractors Act applications

Australia's personal services income (PSI) regime is a federal tax-law overlay designed to prevent individuals from using company, partnership, or trust structures to reduce or defer personal tax on contractor earnings. The rules apply to income that is mainly a reward for an individual's personal efforts or skills and impose an attribution mechanism that can override arrangements labelled as independent contracting.

## What is Personal Services Income? Personal services income is defined under section 84-5 of the Income Tax Assessment Act 1997 (ITAA 1997) as income that is mainly a reward for an individual's personal efforts or skills. The ATO guidance clarifies that PSI does not include income for supplying goods, using income-producing assets, or from a business structure with significant employees or assets. PSI rules cover many consulting, IT, project, and professional services arrangements, whether the individual is engaged directly or through their own company ("personal services entity").

## When are PSI rules triggered for contractors? If more than 50% of the income from a contract (or series of contracts) reflects the individual’s own skill or effort—not results, materials, or equipment—the PSI regime may apply. A personal services entity (company, trust, partnership) is required to conduct a "PSI determination" each year. If PSI is present, the rules may:

• Deny some small business tax concessions and deductions; and
• Attribute the PSI to the individual worker and tax it at their marginal rate, regardless of the entity used.

## The Personal Services Business (PSB) tests — carveouts from PSI attribution A contractor can avoid PSI attribution (and associated limitations) if the engagement qualifies as a personal services business (PSB) under Division 87 of the ITAA 1997. To qualify as a PSB, one of four tests must be satisfied for the income year:

1. Results Test (primary test; s 87-18): At least 75% of PSI is for producing a result (not hours worked), the contractor provides all necessary tools/equipment, and is liable for rectifying defects at their own cost.
2. Unrelated Clients Test (s 87-20): PSI is sourced from two or more unrelated clients as a direct result of advertising or tendering.
3. Employment Test (s 87-25): At least 20% (by market value) of principal work is performed by employees or subcontractors (not associates).
4. Business Premises Test (s 87-30): The entity maintains business premises, used mainly for the personal services business, that are physically separate from the worker’s or their associates’ home and from clients.

If none of the PSB tests are satisfied, the PSI rules apply: certain business deductions are disallowed, and PSI must generally be attributed to and taxed in the individual’s hands, bypassing the company/trust structure.

## ATO Approach and Practical Risks The ATO actively reviews contractor/company arrangements for PSI compliance. It is not sufficient to simply have an ABN, invoice as a company, or specify a "contractor" label. Each engagement must be separately analysed against the statutory tests.

Cross-border and inbound employers must advise contractors—especially those operating via interposed entities—that the PSI regime can negate expected tax advantages and result in higher personal income tax liability, as well as limits on claimed deductions for super, rent, or spouse income splitting.

Source: Income Tax Assessment Act 1997 (Cth) Divisions 84–87 Source: ATO — Personal services income (PSI) Source: ATO Taxation Ruling TR 2022/3

Several Australian states and territories extend statutory long service leave (LSL) entitlements to independent contractors in certain circumstances. Victoria is the clearest and most instructive example, as the Long Service Leave Act 2018 (Vic) provides LSL rights not only to employees, but also to some contractors engaged on a regular and systematic basis. This is a critical overlay for cross-border businesses or platforms engaging contractors long term in Victoria.

## Coverage: "worker" includes many contractors (s 3, s 4, s 11)

Under section 3 (definitions) and section 4 ("Who is entitled to long service leave?"), a "worker" eligible for LSL is not restricted to traditional employees. The Act covers any person engaged "under a contract of employment or a contract for services," provided the person "performs work in connection with a business carried on by the employer/principal in and of Victoria."

Section 11 further clarifies that employment may be "continuous" despite some breaks, a change in the identity of the employer/principal, or changes in contractual arrangements—so long as the work is performed for the same business or "related body corporate". This aims to capture multi-year arrangements where an individual contractor (including via sole trader ABN, partnership, or some company structures) works predominantly or continuously for one enterprise.

## Practical requirements:

• The contractor must perform work under a contract "for services" in connection with the business and in Victoria.
• Service must ordinarily be "continuous," but brief breaks or changes in the principal or contract vehicle do not always break continuity (see s 11 and LSL Authority guidance).
• After 7 years (regardless of FTE status), the worker gains a legal entitlement to paid long service leave—calculated at 1/60th of total "continuous service" (6.0667 weeks per 7 years), paid at the worker’s "ordinary pay" (statutory formula for averaging irregular earnings, see s 7). This applies even where the worker is, strictly, a contractor under the Fair Work Act or tax/super rules.

## Implications for cross-border employers Out-of-state or international employers engaging contractors in Victoria—especially through platforms, agency, or long-term direct contracts—must track tenure for LSL compliance and maintain records. Failing to provide LSL can trigger orders from the Victorian Wage Inspectorate, regardless of contractor business structure, if the contract is "primarily for labour" and the arrangement is regular and ongoing. Contractors who perform work for multiple related entities may aggregate service (see s 11).

Other jurisdictions: The ACT maintains similar LSL coverage for contractors (see Long Service Leave Act 1976 (ACT), s 3), but most other states tie eligibility more narrowly to "employees". Always check the local statute for contractor coverage.

Source: Long Service Leave Act 2018 (Vic) ss 3, 4, 7, 11 Source: Victorian Wage Inspectorate — Who gets long service leave?

Australian law does not extend modern award minimum pay rates or National Employment Standards (NES) protections to workers who are genuinely independent contractors. However, where a person has been engaged as a contractor but is, in substance, an employee under the Fair Work Act 2009, they may retrospectively benefit from full award coverage—including minimum wages, penalties, overtime, and leave entitlements—if the engaging entity is a national system employer and the work falls within an industry or occupational award.

## Award coverage — employee threshold, not the contract label Section 47 of the Fair Work Act 2009 provides that a modern award applies to "an employee and employer" if they are covered by the award's scope and classification. Section 15 defines "employee" for this purpose. It is a foundational principle of Australian employment law that the court or the Fair Work Commission (FWC) looks at the "real substance, practical reality and true nature of the relationship" (now codified in s 15KA for constitutionally covered businesses, from 26 August 2024). If a contractor is found on the facts to have been an employee, award entitlements may be triggered from the start of the engagement, regardless of the parties' original intention or any written agreement stating otherwise.

## Scope: modern awards, minimum conditions, and FWC claims A "misclassified" contractor found to be an employee may bring a claim for underpayment or contravention of NES/award rights—including:

• Award minimum pay rates and grade/classification-specific entitlements;
• Overtime, penalty rates, allowances, and loadings;
• Leave (annual, personal/carer’s, and parental) under the NES; and
• Unfair dismissal protection (if other eligibility criteria are met).

Section 545 of the Fair Work Act empowers the FWC or the Federal Court to make orders for backpay and other remedies. The time limit for claims is six years from the alleged underpayment.

## Key tests: practical indicators and high-risk scenarios The crucial step is the fact-based classification test. Indicators that a contractor may be found to be an employee for award/NES purposes include:

• Control over work hours and method by the business;
• Requirement to perform work personally;
• Integration into the business (e.g., uniform, email, tools provided);
• Payment by regular wage, not by result; and
• No genuine business risk borne by the worker.

The label in the contract ("independent contractor") is not determinative. If the substance of the arrangement resembles employment, courts and the FWC may grant full statutory entitlements even where the initial engagement was as a contractor.

Cross-border or foreign employers should be especially alert to these risks in Australia, as FWC proceedings can lead to substantial backpay liabilities and penalties for historic breaches.

Source: Fair Work Act 2009 ss 15, 47, 545, 15KA Source: Fair Work Ombudsman — Modern awards and contractor misclassification

A responsible franchisor entity (including sub-franchisors) can be held legally accountable for workplace law breaches by its franchisee or subfranchisee where:

• The business conducted by the franchisee is substantially associated with the intellectual property of the franchise (the “franchisee entity” definition, FWA s 558A(1)(a)–(b)); and
• The franchisor has a significant degree of influence or control over the franchisee’s affairs (FWA s 558A(2)(a)–(b)).

Liability arises if the franchisee, in its capacity as a franchisee entity, contravenes a civil remedy provision (such as National Employment Standards violations, contraventions of modern awards, or sham-contracting practices) and the franchisor either:

• Knew, or could reasonably have been expected to know, that such a contravention would occur; or
• At the time the contravention occurred, knew or could reasonably foresee that a similar contravention was likely (FWA s 558B(1)(d)(i)–(ii)).

This extended liability regime was introduced to close a recurring enforcement gap in franchised business models, where franchise heads could otherwise avoid responsibility for widespread underpayment or misclassification at the franchisee level. It applies even without detailed knowledge of the specific breach—liability turns on foreseeability and a franchisor’s failure to take reasonable steps to prevent breaches. The Fair Work Ombudsman (FWO) can bring actions against both entities; courts can order compensation or civil penalties from the franchisor, who may recover from the franchisee (except for penalties themselves, per s 558C).

Practical compliance: Franchisors (including overseas headquarters entering the Australian market) should document and implement compliance programs, audit franchisees’ worker classification, and contractually require adherence to Australian workplace laws. Demonstrating “reasonable steps” is the best defense against statutory liability—a mix of training, written policies, and regular checks is expected by both regulators and courts.

Source: Fair Work Act 2009, Division 4A (ss 558A, 558B, 558C) Source: Fair Work Ombudsman — Accessorial liability and franchisor liability

In Australia, engaging a worker who is a temporary visa holder as an independent contractor triggers unique compliance risks under the Migration Act 1958, separate from employment law or tax status. Unlike with local citizens or permanent residents, misclassifying a worker as an "independent contractor" can directly result in a breach of immigration law—and potentially expose the engaging party (and its officers) to severe civil and criminal penalties.

1. Migration Act prohibitions: employing or "allowing to work" unlawful or unauthorized non-citizens

Section 245AB of the Migration Act 1958 prohibits a person from allowing or referring an unlawful non-citizen, or a lawful non-citizen in breach of their visa conditions, to work in Australia. "Work" includes both employment and independent contracting. A business breaches s245AB if it knowingly (or recklessly) allows a non-citizen to work in breach of their visa, or simply fails to take reasonable steps to verify work rights. There is no exemption just because someone is engaged on an ABN as a contractor—status as contractor or employee is irrelevant for the purposes of the Migration Act's work permissions framework.

Section 245AC and s245AE create equivalent prohibitions for officers of a company and persons who refer unlawful workers to work (including through labour hire and sub-contracting chains). Penalties for breaches include:

• Civil penalties up to 180 penalty units (over $56,000 per breach for a company as of July 2026);
• Criminal liability (in the case of knowing or reckless contraventions with aggravating features, e.g., exploitation).

2. Key visa subclasses affected — work rights limitations and contractor traps

• Temporary Skill Shortage (TSS) 482, Training 407, or Temporary Work (Short Stay Specialist) 400 visas: These visa holders are generally allowed to perform work only as an employee of their approved sponsor and may not work as an independent contractor or for multiple businesses. Engaging or allowing a sponsored visa holder to "contract" directly, or through an ABN, will breach visa conditions (Condition 8607), regardless of label.
• Working Holiday (subclass 417) and Work and Holiday (subclass 462) visas: These allow short-term work, but engaging a holder as an "independent contractor" does not insulate the engager if the person works more than their allowed period, or outside permitted sectors/roles.
• Student visa (subclass 500): Work rights are subject to strict hours limitations (e.g., 48 hours per fortnight during session as of 2026), regardless of employee vs. contractor label.

The Department of Home Affairs, in its official "Right to Work" publications, makes clear: "Employers must check work rights for ALL workers, regardless of whether they are considered an employee or an independent contractor. It is an offence to allow, or refer, an unlawful or unauthorized non-citizen to work, and there are penalties for both companies and individuals."

3. Practical obligations and classification risk points for employers

• Mandatory VEVO checks: All businesses must verify work rights for every individual engaged, whether as an employee or contractor, using the VEVO online tool. Retaining a copy of the VEVO result and confirming the visa conditions (including any employer or sector-specific constraints and permitted duration/hours) is critical, as neither the presence of an ABN nor contractor invoicing demonstrates compliance.
• Recordkeeping and risk: Failure to check visa status or allowing unauthorized contracting (e.g., ABN hiring of a TSS visa holder who is restricted to a named sponsor) is a breach—even if the individual misleads the engager. The Fair Work Ombudsman and Home Affairs both confirm that paying "contractors" on restricted visas through a payroll company or EOR does not shield the principal from liability.
• Contractor engagement does NOT avoid migration risk: Courts and regulators look through to the practical substance. If a non-citizen works in breach of visa conditions, the principal is at risk for allowing unauthorized work, regardless of payroll structure.

4. Severe consequences for mistakes

Civil penalties, and in cases of intentional or systemic evasion, criminal prosecution. Cross-border and foreign employers in particular must design onboarding and ongoing monitoring procedures to ensure all engagements are checked for visa work rights before onboarding any worker—contractor or employee.

Source: Migration Act 1958 (Cth) ss 245AB–245AE Source: Department of Home Affairs — Employer sanctions and work rights checks Source: Fair Work Ombudsman — Visa workers and workplace rights