There’s a fine line between being a business contractor with an Australian Business Number (ABN) and being an employee. If you’re a contractor with your own ABN, read these tips to help make sure you’re being treated fairly and meeting your obligations.

In some industries, for example in the construction industry, it’s common for businesses to engage someone as an 'ABN subcontractor' when in fact they should be engaged as an employee of that business.

We asked our senior project manager, George Allingham, who has experience in civil, commercial and residential construction, for his tips about ABN contractors.

Work out if you’re an employee or an ABN contractor

If you have set days and hours, you should be engaged as an employee – even if you do have an ABN and run your own business, for example as a sole trader.

According to George, the length of a job or how often you work does not determine if you are a contractor or an employee. “Depending on the tasks and the working arrangements, short-term work can be employment.”

George has listed these other signs you should be an employee:

  • Having your working hours set by your employer with the ongoing expectation of work
  • Being expected to work under the direction and control of the employer on an ongoing basis
  • Bearing no financial risk
  • Using tools, equipment or materials provided by the employer or a tool allowance if you choose to use your own
  • Being paid regularly (weekly, fortnightly or monthly)
  • Not being allowed to subcontract out your work if needed

If any or all of these signs seem to apply to your situation, it’s important to take action so you don’t miss out on entitlements.

You might be missing out on benefits

If you’re engaged as an ABN contractor when you should be an employee, you could miss out on benefits such as super payments and sick leave. You should also be covered by the employers workers’ compensation insurance.

As George notes, “It can be tempting to be engaged as an ABN contractor if it looks as though you might get more money in your hand – but that comes at the cost of having no superannuation and other benefits. That could be a case of long-term pain for short-term gain.”

There can also be serious consequences for any business who engages you as a subcontractor when you should be engaged as an employee. Company Directors are personally liable for missed superannuation payments to employees, and could be subject to additional penalties from the ATO depending on how long you should have been considered an employee.

“Building contractors can be up for considerable fines and backpay for superannuation if audited. Audits can and will be conducted by the ATO or State Government agencies.”

Know your rights

George recommends that you are clear on exactly where you stand before you start working with any other business on a project.

“Just because everyone in an industry treats their workers as contractors, this doesn't mean that they are contractors. If you are an employee for tax and super purposes, that business cannot choose to treat you as a contractor. If your working conditions meet all the criteria of being an employee, you are legally an employee.”

“It's important to avoid verbal agreements – always get your contract in writing, which sets out the terms of your engagement with the business. Read it and make sure you understand it before you start work.”

“If you think you should be engaged as an employee, you could start by seeking independent advice from a qualified source such as your accountant. You might discuss the matter with your employer and seek a resolution – or contact the SBDC for advice.”

You also have the option to lodge a complaint with the Fair Work Commission if you need to take things further.”

More information

For more information on this, read our blog article on the difference between an employee and a contractor or visit the ATO website for details.

If you provide services to another business that uses your labour, skills or expertise, make sure you understand if Personal Services Income (PSI) applies to you.

If you’d like to resolve an issue facing your subcontracting business, explore the tools, resources and support available through our dedicated subcontractor support service.

Starting and growing
27 February 2023