Whether you are an employee or a contractor in Australia is decided by how the work actually runs, not by the word on your invoice. Employees have tax withheld, receive 12% super and accrue leave. Contractors invoice, set aside their own tax, and get none of that.
What actually decides whether you are an employee or a contractor?
The substance of the arrangement. The ATO and the Fair Work Ombudsman both weigh the same handful of factors rather than applying one clean test. Control is the heaviest: if the business decides when you start, where you go and how the job is done, that points hard at employment whatever your paperwork says.
Six factors carry most of the weight, and they are all things you already know about your own job.
- Control: rostered by them, or scheduled by you
- Tools: their ute, their gear, their software, or yours
- Delegation: could you lawfully send a substitute
- Risk: can a job cost you money, or only pay you
- Exclusivity: one business all year, or several clients
- Integration: their uniform and their name badge, or your own invoice
No single factor settles it. Four or more pointing at the business means employee, whatever the ABN on the invoice says.
How do you tell which side your own job falls on?
Look at the payment method first. An employee is paid a rate for time, has PAYG withheld before the money lands, and can see super on the payslip. A contractor is paid against an invoice for an agreed piece of work, receives the gross amount, and is responsible for the tax afterwards.
Then look at what happens when you are sick or when the work runs out. Employees accrue paid leave or, if casual, a loading in place of it, and they are covered by workers compensation. Contractors carry both risks themselves, which is the trade for charging more per hour.
- Paid hourly or daily, tax already taken out: employee
- Paid per bin, per job or per invoice, nothing withheld: usually contractor
- Told when to arrive and what to wear: employee indicators
- Free to accept or decline work and to work elsewhere the same week: contractor indicators
What does the classification change in money terms?
Four things at once, three of them worth real money over a working holiday year. An employee receives 12% superannuation on top of wages, accrues leave, is covered by workers compensation, and has the award minimum as a floor under their rate. A contractor gets none of those and must fund their own tax bill out of what lands in the account.
The fourth is withholding. An employee on a TFN with a completed declaration is withheld at 15% as a working holiday maker. A contractor who invoices without quoting a valid ABN has 47% withheld by the payer, a rule about the missing number rather than about the person, and the excess comes back when the return is lodged.
- Super: 12% of ordinary time earnings for employees, generally nothing for contractors
- Leave: accrued or loaded for employees, none for contractors
- Rate floor: award minimums apply to employees only
- Injury: workers compensation for employees, own insurance for contractors
What is sham contracting, and how would you know?
A business dressing an employment relationship up as contracting so it does not have to pay super, leave or award rates. It is illegal under the Fair Work Act, and the giveaway is always the same: your day looks identical to that of a colleague on payroll, but you were told to get an ABN before your first shift.
The common backpacker version is a labour hire arrangement where the worker is rostered, supervised, supplied with all the equipment and paid per hour, yet asked to invoice. That is not contracting in any sense the law recognises, and signing something agreeing to it does not change the analysis.
If you were genuinely an employee, unpaid super and the gap between what you were paid and the award rate can both be recovered, and the Fair Work Ombudsman handles the complaint free. If the arrangement was genuine contracting, the money comes back instead through deductions against your ABN income. Visa status does not weaken either claim.
Can you be an employee and a contractor at the same time?
Yes, and a lot of working holiday makers are. Employment at a cafe on a TFN and delivery work on an ABN is an ordinary combination, and each stream keeps its own rules: 15% withheld on the wages, nothing withheld on the invoices, super on the wages only.
Both streams land on one tax return at the end of the financial year. The withholding already taken from your wages is credited against the total bill, and a year with heavy ABN income and light wages is where a refund can turn into an amount owing. Worth checking before June rather than after October.