Employee versus Subcontractor - getting it wrong can cost you

An ABN, an invoice and a subcontractor agreement do not settle the question.

In the swimming pool and spa industry, subcontracting is common across construction, installation, servicing and repairs. But calling someone a subcontractor does not automatically make them one. The legal relationship determines the obligations.

Why it matters

Getting the classification wrong can expose a business to unpaid employee entitlements, superannuation liabilities and penalties. It can also leave workers without the pay and protections they should receive. Misrepresenting employment as independent contracting can constitute unlawful sham contracting.

There is also an easily missed distinction: a genuine contractor may still be entitled to superannuation. Employment rights and super obligations require separate assessments.

What should you check?

Start with these questions:

• Control: Who decides how, when and where the work is performed?

• Personal service: Must the individual do the work, or can they genuinely delegate it?

• Commercial risk: Who bears the cost of mistakes, rectification and loss?

• Equipment: Who provides the tools, vehicles and equipment?

• Payment: Is payment for time worked or an agreed result?

• Independence: Is the person operating their own business or working within yours?

These are indicators, not a points-based checklist. No single answer settles the classification. For many incorporated businesses, the Fair Work assessment considers both the contract and how the relationship operates in practice. Other businesses may use a different test, so first confirm which rules apply.

Let’s debunk the myths

“They have an ABN and send invoices, so they’re a subcontractor.” Neither proves contractor status.

“We both agreed they would be a subcontractor.” Agreement cannot remove employee status or statutory obligations.

“It’s only a short job.” Employees can also be engaged for temporary work or particular projects.

“Everyone in our industry does it this way.” Common practice does not establish compliance. Each arrangement needs its own assessment.

“Contractors look after their own super.” Not always. Under the extended superannuation rules, an individual contractor can be treated as an employee for super purposes where the contract is mainly for their personal labour, they must perform it themselves and payment is not dependent on achieving a specified result. This does not automatically give them employee status for every other purpose.

“Subcontracting transfers the safety responsibility.” Under WHS laws, duties cannot simply be transferred through a contract. Businesses in a contracting chain may have overlapping duties and must coordinate their safety arrangements.

The practical checks and balances

Before engagement, document the classification assessment and separately check superannuation, tax, workers compensation and any applicable payroll tax obligations. Use an agreement that accurately reflects the work, retain supporting records and review the arrangement when responsibilities or working practices change.

For example, a technician invoicing weekly while working set hours under close direction deserves careful review. An installer quoting for a defined package, organising their own labour and carrying rectification risk presents different indicators. Neither example should be decided by its label alone.

A subcontractor agreement should record a properly assessed relationship. It should never substitute for that assessment.

NextGen Experts helps businesses identify risks in their contracting arrangements and clarify the issues requiring employment, legal or tax advice.