How to ensure your contractor agreements comply in 2025
If you employ contractors or subcontractors as part of your business operations, then you will need to be aware of changes to the Fair Work Act that impact how your contractor agreements operate. We explain.
The recent changes to the Fair Work Act impacting contractor agreements are crucial for businesses that rely on independent contractors. Starting from August 26, 2024, the test for determining whether a worker is a contractor or an employee has changed.
Under the new guidelines, the whole of relationship test will be used to assess a worker's status, considering not just the written or verbal terms of the contract but also how the contract is actually carried out in practice, formerly referred to as the “multi-factorial test”.
Key factors to evaluate include:
- Control over work: How much influence the business has over how the work is performed.
- Financial risk: Who assumes responsibility for costs and risks.
- Provision of tools and equipment: Who supplies the necessary tools and equipment for the job.
- Delegation: Whether the worker can delegate or subcontract tasks.
- Working hours: Who decides the working hours and how flexible they are.
- Ongoing work expectation: Whether there’s an expectation of work continuing indefinitely.
Sham contracting occurs when a business falsely classifies a worker as a contractor when they should be considered an employee.
This is illegal and can result in substantial fines for businesses and individuals involved. For example, penalties for contraventions can be up to $18,780 for individuals and up to $469,500 for corporations as well as the imposition of order to pay an employees unpaid wages, leave entitlement, superannuation as well as payroll tax and income tax deductions.
Additionally, certain regulated workers, such as those in the digital platform industry or the road transport sector, are subject to extra protections. These contractors are treated differently under the law compared to non-regulated contractors.
Opt-out provision
Opt-out: Independent contractors who earn above the contractor high income threshold (currently $175,000) may elect to "opt out". This means the start of relationship test will be used to work out if the worker is a contractor or an employee. The start of relationship focuses on the contractual agreements made at the beginning, including any variations to the contract.
A worker can withdraw an opt-out notice at any time after opting out by giving written notice to the business. If an opt-out notice is withdrawn, the whole of relationship test applies again from the day the notice is withdrawn.
Other Resources
Cass Wright, Commercial Law Legal Director, says to ensure compliance businesses should be reviewing contracts to determine whether they align to the practical reality of each working relationship. The contracts should reflect the true nature of the worker's role, not just the terms agreed upon initially.
“Businesses are encouraged to seek professional legal advice to assess their contractor agreements and ensure they comply with the new laws,” she says.
Is your business protected against the independent contractor laws? To help, we’re offering a fixed-price Independent Contractor Agreement Review for $700+GST (up to two hours of expert analysis).
To take up this offer either call 08 9365 7746 or email [email protected] to get your agreements reviewed.
