Employment
What a reclassified contractor would actually cost your business
There are around 1.1 million independent contractors in Australia and several separate legal tests for whether each one is really an employee. A contract that says "contractor" settles none of them.
Five tests, five different answers. The contract is not one of them.
Whether the person invoicing you is a contractor is not one question. It is at least five, and they are decided by different bodies against different tests: the common law multifactor test as reframed by the High Court, the whole-of-relationship test in the Fair Work Act, the extended labour contract rule in the super guarantee legislation, each state's relevant contract provisions for payroll tax, and the deeming provisions in workers compensation. It is entirely ordinary for the same arrangement to be a contractor for one and an employee for another.
The super guarantee rule is the one that catches most businesses, because it reaches beyond the common law: a person engaged principally for their labour is an employee for super purposes even where they are a genuine contractor everywhere else. The estimated national super guarantee gap is $6.25 billion, and a large part of it sits in arrangements nobody thought were employment.
The super guarantee charge is not the unpaid super. It is the shortfall, plus nominal interest at 10% from the start of the quarter, plus $20 per employee per quarter — and none of it is deductible, with a further administrative uplift of up to 60% where it is not disclosed.
What it works out
- Each test run separately on your arrangement, so you can see which ones you pass and which one is the exposure — rather than a single verdict that hides the disagreement.
- Back superannuation at 12%, and the super guarantee charge on top of it, quarter by quarter with interest.
- Payroll tax. The relevant contract rules in your state, at rates from 4.0% to 6.75%, with thresholds starting at $1,000,000 — contractor payments can push a business over a threshold it thought it was under.
- Workers compensation premium, on the deeming provisions rather than on the invoice.
- Leave, PAYG withholding, and the sham contracting exposure, which reaches $546,000 and $5,460,000 for a serious contravention.
What the full report adds
- Every option priced against every other. Leave it, restructure the arrangement, convert to employment, or disclose voluntarily — each carried through to what the business actually pays.
- Disclosure against discovery. The same shortfall costs materially different amounts depending on who finds it, and that difference is the whole reason to run this early.
- The whole workforce, not one person. Where an arrangement is used for several people the exposure multiplies, and so does the payroll tax threshold effect.
- Something to take to an adviser. At $220 to $850 an hour, arriving with the exposure quantified changes what the engagement is for.
What it will not do
It does not decide the characterisation. Every one of these tests is applied to the substance of a real relationship by a body with the power to make findings of fact, and a calculator applies them to what you type in. What this gives you is the size of the exposure if the tests go against you, priced separately for each regime, which is the thing that decides whether the arrangement is worth changing. It is not legal, tax or financial advice.
Everything here runs on the rates and thresholds current from 1 July 2026 (2026-27).
What people ask before they run it
Does having an ABN make somebody a contractor?
No. An ABN is a registration number, not a status. Whether somebody is a contractor or an employee is decided by the tests in the law, and there are five separate ones that can each reach a different answer on the same person: the common law test, the Fair Work Act whole-of-relationship test in section 15AA, the super guarantee rule for a contract wholly or principally for labour, the payroll tax relevant contract rules, and the workers compensation deeming provisions. A worker can hold an ABN, invoice you every month, and still be your employee under four of the five.
What does it cost if my contractors are reclassified as employees?
It is the back entitlements plus the charges that sit on top of them. Super at 12% for every year of the arrangement, plus the super guarantee charge — interest at 10% a year and an administration fee for quarters up to 30 June 2026, and from 1 July 2026 daily interest at the general interest charge of 11.43% plus an administrative uplift of up to 60%. Then payroll tax at your state's rate, workers compensation premium on the same wages, four weeks of annual leave and the rest of the National Employment Standards, and long service leave accrual. This calculator prices all of it on your own figures.
Did the rules really change?
Twice, and in opposite directions. In February 2022 the High Court decided Personnel Contracting and Jamsek and put the written contract at the centre of the common law test. On 26 August 2024 section 15AA of the Fair Work Act took effect and required the real substance, practical reality and true nature of the whole relationship to be looked at instead — for Fair Work purposes only. The tax and super tests still follow the contract. That is why one worker can be a contractor for super and an employee for leave.
Do you give legal or financial advice?
No. This is an information service: it applies the published rules and rates to the figures you enter and shows what they produce, with every working visible. It ranks options on one stated arithmetic measure — the total amount payable over the window — and does not recommend one. Whether a restructure is genuinely open to you, and how a court or the Commissioner would characterise your particular arrangement, are not in that measure.
Everything on Contractor or Employee
The estimate is free, and it is a real one.
Runs the Australian contractor or employee tests on your own arrangement — the multifactor common law test as reframed by the High Court, the Fair Work Act whole-of-relationship test, the super guarantee labour contract rule, the payroll tax relevant contract rules and the workers compensation deeming provisions — then prices the back super and super guarantee charge, payroll tax, workers compensation premium, leave and PAYG withholding that a reclassification would produce, and ranks every lawful option on what it leaves the business paying.
Start the Contractor or Employee calculator
