Published 12 April 2024 | Updated 26 August 2024

There have been changes to definitions and protections for independent contractors.

On this page:

• Definition of employment
• Sham contracting
• Unfair terms in contracts
• Regulated workers
• Tools and resources
• Related information

Definition of employment

A new definition of employment has been added to the Fair Work Act to help determine the meaning of ‘employee’ and ‘employer’. This is used by some businesses to work out whether a worker is an independent contractor (contractor) or an employee.

To work out if someone is a contractor or an employee, the following must be considered:

• the real substance, practical reality and true nature of the working relationship
• all parts of the working relationship between the parties. This includes the terms of the contract and how the contract is performed in practice.

Applying the new definition may:

• mean that some working relationships are characterised differently
• result in different rights and obligations for people affected.

The new definition doesn't apply to some businesses and workers. Generally, this definition isn't used by state referred national system businesses (state referred businesses) and workers for these businesses.

For more information, visit Independent contractors.

There are other rules that apply differently to state referred businesses. For more information, visit State referred national system businesses.

The new definition also doesn't affect the meaning of ‘employee’ and ‘employer’ in other existing laws defining employment. For example:

• tax
• superannuation
• workers compensation.

Changes to contractor tests

There is a different method of checking if a worker is a contractor or an employee, using the new definition of employment that applies from 26 August 2024. This new method is known as the whole of relationship test. This test can generally only be used by constitutionally covered businesses.

For more information, visit Whole of relationship test.

The whole of relationship test doesn't apply to state referred businesses and workers. These businesses and workers use the start of relationship test.

For more information, visit Start of relationship test.

Both tests still consider various factors of employment or contracting relationships, including:

• the amount of control over how work is performed 
• financial responsibility and risk 
• who supplies the tools and equipment 
• ability to delegate or subcontract work 
• hours of work 
• expectation of work continuing.

Opting out of the whole of relationship test

Workers who earn more than the contractor high income threshold can ‘opt out’ of using the whole of relationship test by notifying the business they work for. Instead, they can use the start of relationship test.

From 1 July 2024, the contractor high income threshold is $175,000.

For more information, visit Opting out of the whole of relationship test.

Sham contracting

There are changes to the sham contracting defence.

Sham contracting is misrepresenting an employment arrangement as an independent contractor arrangement. Employers who engage in sham contracting can be penalised.

A defence is one provided to a court to defend a claim against sham contracting.

The previous defence to sham contracting claims (known as the ‘recklessness’ test) has been changed to a ‘reasonableness’ test.

To defend a sham contracting claim, an employer must now prove that at the time the representation was made they reasonably believed the worker was engaged as a contractor.

For more information, visit Sham contracting.

Unfair terms in contracts

Contractors can apply to the Fair Work Commission (the Commission) if they think their services contract contains an unfair contract term.

The Commission is the national workplace relations tribunal and registered organisations regulator.

The Commission will be able to:

• determine whether a term of a services contract is an unfair contract term, taking into account a range of factors
• make an order to set aside, amend or vary all or part of the contract if a services contract contains one or more unfair contract terms.

The new laws only apply where there is a ‘constitutional connection’. For example, if the contractor performs work under a services contract with a constitutional corporation.

Contractors earning over the contractor high income threshold can’t apply for an unfair contract remedy with the Commission.

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.

For more information, visit Contractor entitlements and support.

Regulated workers

A new category of contractor has been created, known as regulated workers. Regulated workers have additional rules and protections compared to most contractors.

Regulated workers are contractors doing certain types of work, including:

• employee-like workers doing digital labour platform work
• contractors in the road transport industry
• contractors performing work in a road transport contractual chain.

Read more about the changes at Minimum standards for contractors.

For more information, visit Regulated workers.

Tools and resources

• business.gov.au – Contractors
• Independent Contractors Act 2006
• Department of Employment and Workplace Relations – Closing Loopholes fact sheets
• Regulated worker updates

Related information

• Independent contractors
• Regulated workers
• Minimum standards for contractors
• Labour hire and supply chains
• Hiring employees
• Outworkers