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A practical myth-busting guide to employee versus contractor risk for small businesses using the Fair Work whole-of-relationship test.
There’s a dangerous sentence in small business:
"They have an ABN, so they’re a contractor."
That’s not how it works.
An ABN, invoice, contractor agreement or label can be relevant, but it doesn’t automatically decide the relationship. The way the arrangement works in practice can matter a lot.
Getting this wrong can create exposure across wages, leave, super, payroll tax, workers compensation, penalties and disputes.
The one bit of gold
The label doesn’t decide the relationship.
A person can issue invoices and still be more like an employee. A contract can say "contractor" while the day-to-day reality says "employee". If the practical relationship doesn’t match the paperwork, the paperwork may not save you.
There’s a dangerous sentence in small business:
"They have an ABN, so they’re a contractor."
That’s not how it works.
An ABN, invoice, contractor agreement or label can be relevant, but it doesn’t automatically decide the relationship. The way the arrangement works in practice can matter a lot.
Getting this wrong can create exposure across wages, leave, super, payroll tax, workers compensation, penalties and disputes.
The one bit of gold
The label doesn’t decide the relationship.
A person can issue invoices and still be more like an employee. A contract can say "contractor" while the day-to-day reality says "employee". If the practical relationship doesn’t match the paperwork, the paperwork may not save you.
Image Caption
The questions to ask
Start with control.
Who decides when, where and how the work is done? If the business directs hours, location, process and priorities, that points more towards employment.
Then look at financial risk.
Can the worker make a profit or loss from the job? Are they responsible for rectifying poor work at their own cost? Do they carry insurance and business risk?
Look at tools and equipment.
Does the worker provide significant tools, systems, equipment or materials, or are they using the business's resources?
Look at delegation.
Can they send someone else to do the work, or must they personally perform it?
Look at ongoing expectation.
Is the person engaged for a specific result, or are they part of the normal ongoing workforce?
Look at integration.
Do they appear to customers and staff like part of the team? Do they wear the uniform, use the email address, follow rosters and sit inside the org chart?
No single factor is always decisive. The relationship needs to be considered as a whole.
Different laws can ask different questions
This is where it gets annoying but important. Fair Work, tax, super, payroll tax and workers compensation rules can use different tests or concepts. A person might be treated one way for one purpose and differently for another.
That’s why a contractor review should not be a quick vibe check, it needs proper advice. We partner with some great law firms, let me know if you’d like an introduction.
Start with control.
Who decides when, where and how the work is done? If the business directs hours, location, process and priorities, that points more towards employment.
Then look at financial risk.
Can the worker make a profit or loss from the job? Are they responsible for rectifying poor work at their own cost? Do they carry insurance and business risk?
Look at tools and equipment.
Does the worker provide significant tools, systems, equipment or materials, or are they using the business's resources?
Look at delegation.
Can they send someone else to do the work, or must they personally perform it?
Look at ongoing expectation.
Is the person engaged for a specific result, or are they part of the normal ongoing workforce?
Look at integration.
Do they appear to customers and staff like part of the team? Do they wear the uniform, use the email address, follow rosters and sit inside the org chart?
No single factor is always decisive. The relationship needs to be considered as a whole.
Different laws can ask different questions
This is where it gets annoying but important. Fair Work, tax, super, payroll tax and workers compensation rules can use different tests or concepts. A person might be treated one way for one purpose and differently for another.
That’s why a contractor review should not be a quick vibe check, it needs proper advice. We partner with some great law firms, let me know if you’d like an introduction.
The red flags
Be careful where:
the person works set hours every week;
the person mainly works for your business;
they are paid hourly rather than for a result;
they cannot delegate;
they use your tools and systems;
they are supervised like employees;
they wear your uniform or use your email;
the arrangement replaced an employee role;
the contract says contractor but the practice says employee.
These do not automatically decide the issue, but they are signals to review.
Be careful where:
the person works set hours every week;
the person mainly works for your business;
they are paid hourly rather than for a result;
they cannot delegate;
they use your tools and systems;
they are supervised like employees;
they wear your uniform or use your email;
the arrangement replaced an employee role;
the contract says contractor but the practice says employee.
These do not automatically decide the issue, but they are signals to review.
Don’t build a business on avoidance
Sometimes contractor arrangements are legitimate. Many businesses use contractors properly. The issue isn’t contractors. The issue is using contractor labels to avoid employee obligations where the relationship is really employment.
Sometimes contractor arrangements are legitimate. Many businesses use contractors properly. The issue isn’t contractors. The issue is using contractor labels to avoid employee obligations where the relationship is really employment.
What to do this week
What to do this week
List every contractor who works regularly in your business. For each one, answer the control, risk, tools, delegation, payment and integration questions. If any relationship feels too close to employment, get advice before it becomes a dispute.
Website disclaimer note: This article provides general information only and does not take into account your circumstances. It is not a substitute for tax, legal, financial, employment, cyber security or other professional advice.
List every contractor who works regularly in your business. For each one, answer the control, risk, tools, delegation, payment and integration questions. If any relationship feels too close to employment, get advice before it becomes a dispute.
Website disclaimer note: This article provides general information only and does not take into account your circumstances. It is not a substitute for tax, legal, financial, employment, cyber security or other professional advice.
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Got questions?Maybe it’s time for a macchiato with Chris.
Got questions?
Maybe it’s time for a
macchiato with Chris.
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© 2026 Denari Advisory. Liability limited by a Scheme approved under Professional Standards Legislation.
Strategy and Site by Touching Base
Ready to kick-start your self-made journey?
© 2026 Denari Advisory. Liability limited by a Scheme approved under Professional Standards Legislation.
Strategy and Site by Touching Base
Ready to kick-start your
self-made journey?
© 2026 Denari Advisory. Liability limited by a Scheme approved under Professional Standards Legislation.
Strategy and Site by Touching Base
