Independent contractor changes

Last updated 22 April 2024

There have been changes to definitions and protections for independent contractors.

Definition of employment

Calendar icon These changes start on  26 August 2024, or an earlier date set by the Australian Government.

A new definition will be added to the Fair Work Act to help determine the meaning of ‘employee’ and ‘employer’.

To determine if a worker is an employee or an independent contractor, the following must be considered:

  • The real substance, practical reality and true nature of the working relationship. This also applies when determining whether a person is an employer or a principal for outworkers.
  • All parts of the working relationship between the parties. This includes the terms of the contract and how the contract is performed in practice. This is a change from the existing test, which focuses mainly on the terms of a contract.

Applying the new definition may:

  • mean that some working relationships are characterised differently
  • result in different rights and obligations for people affected.

This may occur where the terms of the written contract don’t align with other factors. For example, how the contract is performed in practice.

The new definition won’t apply to some people. This includes a person who, if they were an employee or employer, would only be in the national workplace relations system because their state referred their powers to make workplace laws to the Commonwealth.

The new definition also won’t affect the meaning of ‘employee’ and ‘employer’ in other existing laws defining employment. For example:

  • tax
  • superannuation
  • workers compensation.

Working out if you’re an employee or a contractor

Working out whether you’re an employee or a contractor isn’t an issue we decide.

We can give you information and advice on minimum workplace rights and responsibilities. This includes on these new laws.

If you need confirmation that you’re an employee or a contractor (or a principal or an employer), you will need to seek legal advice. Find out about seeking legal advice from our Legal help page.

Opt-out

Certain workers who earn more than the contractor high income threshold will also be able to ‘opt out’ of applying the new definition through a notification process.

Contractor high income threshold

The contractor high income threshold hasn’t been set yet. We will update the information on this page when it’s available.

Remember to subscribe to email updates to find out when we’ve updated our information.

The contractor high income threshold also impacts other changes for independent contractors.

If a worker’s earnings exceed the contractor high income threshold, a principal or employer will be able to give the worker a written notice stating that the worker can give them an ‘opt out notice’. This can be done when the principal or employer thinks that worker may be in an employment relationship because of the new definition of ‘employee’ and ‘employer’.

If a worker provides an opt out notice to the employer or principal, the new definition won’t apply to their relationship.

A worker can revoke an opt out notice at any time by giving written notice. Timeframes and additional requirements apply.

Sham contracting

Calendar icon These changes started on 27 February 2024.

There are changes to the sham contracting defence.

Sham contracting is misrepresenting an employment arrangement as an independent contractor arrangement. Employers who engage in sham contracting can be penalised.

A defence is one provided to a court to defend a claim against sham contracting.

The previous defence to sham contracting claims (known as the ‘recklessness’ test) has been changed to a ‘reasonableness’ test.

To defend a sham contracting claim, an employer must now prove that at the time the representation was made they reasonably believed the worker was engaged as a contractor.

Unfair terms in contracts

Calendar icon These changes start on  26 August 2024, or an earlier date set by the Australian Government.

Contractors will be able to apply to the Fair Work Commission (the Commission) if they think their services contract contains an unfair contract term.

The Commission is the national workplace relations tribunal and registered organisations regulator.

A services contract is a contract for services that relates to the performance of work by a contractor.

The Commission will be able to:

  • determine whether a term of a services contract is an unfair contract term, taking into account a range of factors
  • make an order to set aside, amend or vary all or part of the contract if a services contract contains one or more unfair contract terms.

The new laws will only apply where there is a ‘constitutional connection’. For example, if the contractor performs work under a services contract with a constitutional corporation.

Contractors earning over the contractor high income threshold can’t apply for an unfair contract remedy with the Commission.

Contractors can apply to a court for a review of their services contract under the rules of the Independent Contractors Act 2006 if they think the contract is harsh or unfair. This provides different pathways for review for contractors at different income levels.

Minimum standards for contractors

Calendar icon These changes start on  26 August 2024, or an earlier date set by the Australian Government.

New frameworks will be set up to protect independent contractors:

  • performing work on digital labour platforms (employee-like workers)
  • working in the road transport industry.

Find out from our Minimum standards for contractors page.

Updates from the Commission

The Commission has also launched a subscription service to provide updates about matters affecting regulated workers. Go to: Regulated worker updates.

Tools and resources

Related information