Subcontractor vs Employee in Australia (2026 Rules)

Subcontractor vs employee comes down to whose business the work is done in. An employee works in your business under your direction, usually paid for time. A genuine subcontractor runs their own business, quotes a result, supplies tools and carries the risk. Labels, ABNs and invoices do not decide it; the real working arrangement does.

Getting it wrong is expensive: back-pay, super guarantee charges, penalties and uninsured injuries. This guide explains the 2026 tests used by Fair Work and the ATO, compares real costs and shows when each option suits a building or trades job. General information, not legal advice.

What is the difference between a subcontractor and an employee?

No single factor is decisive. The Fair Work Ombudsman's whole of relationship test page lists control, financial risk, tools, delegation, hours and the expectation of ongoing work, and stresses that an ABN or invoice does not make someone a contractor.

What is the new independent contractor vs employee rule?

Three rule sets now apply, and they do not all ask the same question:

• Fair Work, companies (from 26 August 2024): businesses with Pty Ltd or Ltd in their name generally use the whole of relationship test, which looks at the real substance, practical reality and true nature of the relationship, including how the contract operates in practice.
• Fair Work, sole traders and partnerships: in NSW, Victoria, Queensland, South Australia and Tasmania they generally still use the start of relationship test, focused on the written contract's terms.
• ATO, tax and super: the ATO says you look at the legal rights and obligations in the contract to decide whether the worker serves in your business, following the 2022 High Court decisions. It also lists labourers, trades assistants, apprentices and trainees as always employees.

Two 2026 updates matter. From 1 July 2026, the contractor high income threshold is $190,100, and contractors earning above it can opt out of the whole of relationship test in writing. Also from 1 July 2026, Payday Super applies to contractors paid wholly or principally for their labour: super is calculated on qualifying earnings and is due within 7 business days after each payment.

Is it cheaper to use subcontractors or employees?

Compare the full cost, not just the hourly figure. Indicative 2026 market observations for a labourer-level role in Sydney or Melbourne, one 38-hour week (not legal minimums; check the Fair Work pay guides for award rates):

For labouring, the employee is often cheaper per hour because the subcontractor's rate has to cover their own super, insurance, tools, downtime and tax. Subcontractors win on cost when they bring specialist licences, plant or productivity, for example a tiling crew pricing a bathroom per square metre.

When does each fit on a building job?

Use employees (casual, part-time or full-time) for:

• General labourers, site cleaners and trades assistants working under your supervisor.
• Apprentices and trainees.
• Regular crew members you roster every week.

Use genuine subcontractors for:

• Licensed trade packages such as electrical, plumbing, gas and waterproofing.
• Defined scopes priced as a whole: a concrete slab, a tiling package, a scaffold erect and dismantle.
• Work needing the subcontractor's own plant: excavators, concrete pumps, cranes.

Example: a builder in Box Hill North running a two-storey home employs two casual labourers for site clean-up, material handling and digging, and subcontracts framing, roofing, electrical, plumbing and tiling to licensed businesses that quote each package. That mix keeps control where the builder needs it and puts risk with specialists.

How can you check if a worker is a contractor or employee?

1. Use the ATO's employee or contractor decision tool and keep the result with your records.
2. Read the ATO guidance on employees and contractors, including the always-employee list.
3. Work out whether your business is constitutionally covered for the Fair Work test.
4. Write a contract that reflects how the work will actually happen, then check it still matches reality a few months in.
5. Get advice if the answer is unclear. The Fair Work Ombudsman cannot decide status for you; a court ultimately can.

The biggest trap is a labourer on an ABN who turns up every day, takes instructions and is paid by the hour. Our guides to sham contracting and whether a labourer can have an ABN cover that scenario.

What happens if you get it wrong?

If a "subcontractor" is really an employee, the business can owe unpaid wages and entitlements, the super guarantee charge with interest and penalties, PAYG withholding penalties and workers compensation back-premiums. The Fair Work Ombudsman lists maximum sham contracting penalties of up to $546,000 per contravention for larger businesses as at July 2026. Directors and managers involved can also be liable.

How do you move a subcontractor onto the payroll?

If you review an arrangement and decide a "subcontractor" is really working as an employee, fix it going forward and deal with the past properly rather than hoping it goes unnoticed:

1. Offer employment in writing, stating whether the role is casual, part-time or full-time, the award classification and the rate.
2. Collect a tax file number declaration and super choice form, add the worker to payroll and start Single Touch Payroll reporting.
3. Give a Casual Employment Information Statement if the role is casual, and the Fair Work Information Statement.
4. Declare their wages to your workers compensation insurer.
5. Get advice on past periods. Unpaid super can be addressed by lodging a super guarantee charge statement, and voluntary disclosure is generally treated more favourably than an audit finding.

Never pressure an existing employee in the other direction. Dismissing or threatening to dismiss an employee so they can be re-engaged as a contractor for the same work is a specific sham contracting breach.

Hiring employees or subcontractors on Yakka

Yakka Labour is a hiring marketplace, not the workwear brand with a similar name. Hirers post jobs with the suburb, start time, tickets and AUD rate, and workers or trade businesses apply directly. Yakka is not an employer or labour hire agency, so the hirer decides the engagement type and meets the matching obligations.

1. Post the job and state whether it is casual employment or a quoted subcontract scope.
2. Check tickets, licences and insurance certificates in the job thread.
3. Agree the rate or price in writing and pay through the platform.

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