Employee vs Independent Contractor in Australia — What's the Difference?

Why the Distinction Matters

Whether you are an employee or an independent contractor determines:

• Your entitlements (annual leave, sick leave, minimum wage, super)
• Who pays your tax and superannuation
• Your protections against unfair dismissal
• Your access to workers' compensation
• Your rights under workplace health and safety laws

Sham contracting — where an employer labels someone a contractor to avoid providing employee entitlements — is illegal under the Fair Work Act.

The Multi-Factor Test

Australian courts and tribunals look at the totality of the relationship, not just what the parties call it or what the contract says. The High Court in CFMMEU v Personnel Contracting (2022) confirmed that the written contract is the starting point, but the real relationship matters.

Key factors courts consider:

Factor	Points to employee	Points to contractor
Control	Employer directs how work is done	Worker controls how they do the work
Integration	Part of the business	Running their own business
Equipment	Employer provides tools/equipment	Worker provides their own
Delegation	Must do work personally	Can subcontract or delegate
Commercial risk	Employer bears financial risk	Worker bears financial risk
Exclusivity	Works only for this business	Works for multiple clients
Invoicing	Paid a regular wage/salary	Submits invoices for work
ABN	Unlikely to have one	Usually has an ABN

No single factor is decisive — it's the overall picture.

The "Deemed Employee" Rule

From 26 August 2024, amendments to the Fair Work Act created a new test. If a worker earns below the contractor high income threshold (currently $175,000), they can apply to the Fair Work Commission to have their true employment status determined.

Workers earning above the threshold are presumed to have freely chosen contractor status.

Superannuation for Contractors

Even genuine contractors may be entitled to superannuation contributions if they are engaged wholly or principally for their labour. This is called the "extended definition of employee" under the Superannuation Guarantee (Administration) Act 1992.

If you're a contractor and you work primarily using your own labour (rather than providing a result using your own business and employees), your principal may owe you super contributions.

What To Do If You've Been Misclassified

If you believe you're a sham contractor (actually an employee):

1. Gather evidence: your work schedule, who controls how you work, equipment provided, etc.
2. Lodge a claim with the Fair Work Commission or Fair Work Ombudsman
3. Seek unpaid entitlements including annual leave, sick leave, and super

The limitation period for recovering unpaid entitlements is generally 6 years for underpayment claims.