Independent contractors
Independent contractors work for themselves by providing services to another person or business. Independent contractors are different from employees and don’t have the same rights and obligations.
Independent contractors are also called contractors or subcontractors.
On this page:
- Difference between contractors and employees
- How to confirm if someone is a contractor
- Whole of relationship test
- Start of relationship test
- Sham contracting
- Regulated workers
- Entitlements and support
- Related information
Our information is a guide
The information on this page is general guidance.
We (the Fair Work Ombudsman) can’t decide if someone is a contractor or an employee. We can only give information and advice to help you make this assessment.
If you need confirmation that you or someone else is a contractor or an employee, you should consider seeking legal advice. Find out how at Legal help.
Difference between contractors and employees
Independent contractors (contractors) provide services for another business or person instead of being employed by them. They usually negotiate their own fees and working arrangements and can work for more than one client at a time.
Contractors don’t have the same rights and obligations as employees.
Contractors, and people engaging contractors, should know:
- how to confirm if someone is a contractor
- where to find information about entitlements and support.
How to confirm if someone is a contractor
Confirming contracting arrangements from 26 August 2024
For constitutional national system business (constitutionally covered businesses) , the test for working out whether someone is a contractor or an employee has changed.
For workers already engaged by constitutionally covered businesses:
- the start of relationship test applies before 26 August 2024
- the whole of relationship test applies from 26 August 2024.
When applying the whole of relationship test to decide if a worker is a contractor or employee, how the contract is performed in practice must be considered.
Businesses and workers should check their existing contracting arrangements on 26 August 2024. This is important if how the contract is performed has changed since the start of the relationship. They should consider if these arrangements are now affected by the new definition of employment that came into effect on 26 August 2024.
For more information about other 26 August 2024 changes, visit Closing Loopholes.
Whether a worker is a contractor or an employee depends on a number of factors. These include:
- the amount of control the business has over how work is performed
- who holds financial responsibility and risk
- who supplies the tools and equipment
- the worker’s ability to delegate or subcontract work
- how hours of work are set
- any expectation of work continuing indefinitely.
These factors are used in different tests depending on:
- when the test is applied
- the type and location of the business who engages the worker.
The tests are the:
Both tests involve considering the terms of the contract. The terms of the contract can be verbal, in writing or a mix of both.
The main difference between the tests is:
- the start of relationship test focuses on what the parties have agreed, for example as set out in a contract and any later variations to that contract.
- the whole of relationship test requires consideration of the practical reality of the relationship, including the terms of the contract and how the contract is performed in practice.
When engaging workers, you should:
- determine which test applies using the table below
- use the applicable test to determine if the worker is a contractor or an employee.
| Type of businesses | Definition | Test |
|---|---|---|
| Constitutional national system business (also called a constitutionally covered business) | A financial or trading corporation formed in Australia or a foreign corporation. A business is usually a constitutional corporation if it has ‘Pty Ltd’ or ‘Ltd’ in its business name. |
|
| State referred national system business (also called state referred businesses) | Businesses that are in the national workplace relations system because the state they’re based in referred their powers to make workplace laws to the Commonwealth, including:
| Start of relationship test |
State referred businesses also have other rules apply differently to them. Visit State referred national system businesses.
Tip: Changes to the relationship
Changes to the relationship can affect whether a worker is a contractor or employee under the whole of relationship test. If you are considering changes to how the work will be performed, you should also consider how those changes could impact the outcome of the whole of relationship test.
If how the contract has been performed in practice doesn’t align with the terms of the contract, seek independent advice or Legal help.
Whole of relationship test
Changes from 26 August 2024
From 26 August 2024, the whole of relationship test must be used by certain businesses to work out if a worker is a contractor or an employee.
The whole of relationship test determines if a worker is a contractor or an employee by considering the real substance, practical reality and true nature of the relationship.
This test will generally only apply to constitutionally covered businesses.
Constitutionally covered businesses use the start of relationship test when working out if a worker was a contractor or an employee for work performed before 26 August 2024.
For more information about the test and how to use it, visit Whole of relationship test.
Start of relationship test
Changes from 26 August 2024
The start of relationship test is the test for working out if a worker was a contractor or an employee before 26 August 2024.
Some businesses continue to use the start of relationship test to determine if a worker is a contractor or an employee from 26 August 2024.
The start of relationship test determines if a worker is a contractor or an employee based on what the parties have agreed to. This agreement will usually be set out in a contract which can be written, verbal or a mix or both. If the parties agree to vary the contract, those changes need to be considered for the purposes of determining if a worker is a contractor or an employee.
This test is used by:
- state referred national system businesses (state referred business)
- constitutionally covered businesses when determining if a worker is a contractor or an employee:
- before 26 August 2024, or
- if the worker opted out of the whole of relationship test.
For more information about the test and how to use it, visit Start of relationship test.
Sham contracting
Sham contracting can happen when a business or person:
- tells or represents to a worker that they’re a contractor, when they’re actually an employee, and
- doesn’t reasonably believe the worker is a contractor.
Sham contracting is illegal.
For more information, visit Sham contracting.
Regulated workers
Some contractors are regulated workers. They have additional rules and protections compared to contractors who aren’t regulated workers.
Regulated workers are contractors doing certain types of work, such as:
- employee-like workers doing digital platform work
- contractors in the road transport industry
For more information, visit Regulated workers.
Entitlements and support
Contractors aren’t entitled to the same pay and conditions as employees.
For information and support, visit Contractor entitlements and support.
Source reference: Fair Work Act ss15AA
