Short version: Most working arrangements in labour hire fall into one of three categories: permanent (full-time or part-time) employees, casual employees and independent contractors. A casual is an employee, not a contractor. That leaves two separate questions — is this worker an employee or a contractor, and if they are an employee, is the employment genuinely casual? Since 26 August 2024 the Fair Work Act answers both by looking at the real substance and practical reality of the relationship, not just the paperwork, although which contractor test applies depends on the business. An ABN, an invoice or a contract label does not settle either question, tax and super use their own test, and some contractors must still be paid super.
Three categories, two questions
- Permanent employees (full-time or part-time) have a firm advance commitment to ongoing work, paid leave, and notice when the employment ends.
- Casual employees are employees without a firm advance commitment to continuing and indefinite work. They are paid a casual loading or casual rate and don’t get most types of paid leave, notice of termination or redundancy pay.
- Independent contractors are not employees. They provide services to a business rather than being employed by it, usually negotiate their own fees and working arrangements, and can work for more than one client at a time.
Sham contracting is about the line between employee and contractor. The casual rules are about a line inside employment: casual versus permanent. A business can get the first right and the second wrong.
Employee or contractor: the Fair Work test since 26 August 2024
Section 15AA of the Fair Work Act, which commenced on 26 August 2024, says whether someone is an employee is decided by the real substance, practical reality and true nature of the relationship. The totality of the relationship must be considered — not only the terms of the contract but also how it is performed in practice. The Fair Work Ombudsman calls this the whole of relationship test.
Which test applies depends on the business:
- Constitutionally covered businesses — generally companies with “Pty Ltd” or “Ltd” in their name — use the whole of relationship test for work from 26 August 2024.
- State referred businesses — including sole traders, partnerships and other unincorporated entities in New South Wales, Queensland, South Australia, Victoria and Tasmania — use the start of relationship test, which focuses on what the parties agreed in the contract and any later variations.
- For work performed before 26 August 2024, the start of relationship test applies.
- A worker earning more than the contractor high income threshold ($190,100 from 1 July 2026) can opt out of the whole of relationship test by giving the business written notice, so the start of relationship test applies instead.
Under either test the Fair Work Ombudsman points to the same factors: how much control the business has over how the work is done, who carries the financial risk, who supplies tools and equipment, whether the worker can delegate or subcontract, how hours are set, and whether there is an expectation of work continuing. No single factor decides it.
Tax and super use a different test
The Fair Work Ombudsman says the new definition doesn’t change the meaning of employee in other laws such as tax, superannuation and workers’ compensation. For tax and super, the ATO applies the approach the High Court set out in 2022 in CFMMEU v Personnel Contracting and ZG Operations v Jamsek: it looks at the legal rights and obligations in the contract — written, oral or implied — and asks whether the worker serves in your business or provides services to it to further their own business. The ATO also says apprentices, trainees, labourers and trades assistants are always treated as employees.
Two points matter most for labour hire businesses:
- Super for some contractors. A contractor paid under a contract that is mainly for their labour — more than half its value is for labour, they are paid for their personal labour and skills rather than a result, and they must do the work themselves — is an employee for super guarantee purposes, even with an ABN. From 1 July 2026 that means at least 12% of their qualifying earnings, which for these contractors includes all payments for their labour, overtime included, but not materials, equipment or GST. They can generally choose their own fund, paying the 12% to the contractor instead of a fund does not count, and the Payday Super deadlines apply to them too.
- Withholding under labour hire arrangements. The ATO says a labour hire business must withhold tax from payments to the individual workers it places with clients, whether they are employees or independent contractors, and those workers need to give it their TFN even if they also have an ABN.
What the sham contracting rules prohibit
Sections 357 to 359 of the Fair Work Act make three things unlawful:
- Misrepresenting employment as contracting (s 357) — telling an employee, or someone you propose to employ, that their contract is a contract for services as an independent contractor. It is a defence if the employer proves that, when it made the representation, it reasonably believed the contract was a contract for services. In deciding whether that belief was reasonable, a court must have regard to the size and nature of the employer’s enterprise.
- Dismissing to re-engage as a contractor (s 358) — dismissing, or threatening to dismiss, an employee in order to engage them as an independent contractor to do the same, or substantially the same, work.
- Misrepresentation to engage as a contractor (s 359) — making a statement the employer knows is false to persuade a current or former employee to become a contractor doing the same, or substantially the same, work.
The reasonable-belief defence replaced an older recklessness test on 27 February 2024, so an employer now has to show its belief was reasonable, not merely that it wasn’t reckless. These are civil remedy provisions: a court can order penalties for each contravention, and the Fair Work Ombudsman publishes the current maximums. Separately, the ATO notes that treating an employee as a contractor can bring PAYG withholding penalties and the super guarantee charge.
An ABN, an invoice or a label doesn’t decide it
The ATO and the Fair Work Ombudsman both reject the common shortcuts:
- An ABN makes no difference to whether a worker is an employee or a contractor.
- Invoicing, or being “paid on invoice”, doesn’t make someone a contractor.
- A contract that says “independent contractor” won’t turn an employee into a contractor.
- The worker’s preference doesn’t decide it; the working arrangement does.
- Industry practice — “everyone in our industry uses contractors” — isn’t a test.
- Short, casual or busy-period work can be done by employees or contractors; the length or regularity of a job doesn’t settle it.
- One job isn’t every job. A worker can be a contractor for one job and an employee for the next, so each arrangement needs checking.
What makes casual employment genuine
Since 26 August 2024, section 15A of the Fair Work Act says an employee is casual only if the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work, and they are entitled to a casual loading or a casual rate of pay. Whether there is a firm advance commitment is assessed on the real substance, practical reality and true nature of the relationship — including any mutual understanding or expectation, not just the contract — having regard to:
- whether the employer can choose to offer work and the employee can choose to accept or reject it, and whether that happens in practice;
- whether continuing work of that kind is reasonably likely, given the nature of the business;
- whether full-time or part-time employees do the same kind of work;
- whether there is a regular pattern of work.
No single consideration decides it, and a regular pattern of work does not by itself mean there is a firm advance commitment. A worker who starts as a casual stays casual until their status changes — by accepting an offer of other employment and starting on that basis, through the employee choice pathway or their award or agreement, or by a Fair Work Commission order.
Under the employee choice pathway, a casual employed for at least 6 months (12 months with a small business) who believes they no longer meet the casual definition can give their employer written notice. The employer must consult and respond in writing within 21 days, and can refuse only on limited grounds. More in casual vs part-time for labour hire agencies.
Sham casual arrangements
The Act also prohibits two ways of turning permanent employment into casual work (ss 359B and 359C):
- dismissing, or threatening to dismiss, an employee in order to re-engage them as a casual doing the same, or substantially the same, work; and
- making a statement the employer knows is false to persuade a current or former full-time or part-time employee to become a casual doing the same, or substantially the same, work.
These are civil remedy provisions too.
Why labour hire sits close to both questions
Labour hire businesses meet both questions more often than most. Some casual placements really are short and unpredictable; others put the same worker at the same client site on the same days for months, and the casual definition looks at that reality. Contractor arrangements sit alongside employment as well — sometimes appropriately, with a worker who genuinely runs their own business, and sometimes where the worker looks and works like an employee. Checking the classification when someone is engaged, and again when the pattern of work changes, matters more here than in a business with a small, stable workforce. If you are also working through state licensing, see labour hire licensing in Australia.
Where OnCrew fits, and where it does not
OnCrew does not decide whether a worker is an employee or a contractor, whether a casual engagement is genuinely casual, or whether an arrangement is a sham. It doesn’t detect sham contracting, determine tax, super or withholding treatment, or calculate entitlements. Those are legal and payroll judgements about a specific relationship.
What it does record:
- The engagement basis your business declares. An admin sets each worker’s engagement basis to Employee (PAYG), Contractor (ABN) or Not classified yet. The screen says it plainly: OnCrew records what your business declares and does not make a legal determination. Workers can’t set it themselves, each change is logged with who made it, and leaving a worker as “not classified yet” doesn’t stop them being rostered.
- The details that go with it. Onboarding asks an employee for their TFN and tax declaration answers, and a contractor for their ABN and GST registration. The contractor path doesn’t ask for a TFN, so if you pay contractors under a labour hire arrangement, collect it through your payroll process.
- How the work actually happens. Each worker’s profile lists their recent assignments and their timesheet history by client — the day-to-day record that shows whether a placement has settled into a regular pattern, for you and your adviser to assess.
For payroll reporting on a casual workforce, see Single Touch Payroll for casual workforces.
Official sources checked for this guide (October 2026): Fair Work Act 2009 (compilation of 7 July 2026), ss 15A, 15AA–15AD, 357–359, 359B–359C · Fair Work Ombudsman — independent contractors · Fair Work Ombudsman — whole of relationship test · Fair Work Ombudsman — opting out of the whole of relationship test · Fair Work Ombudsman — sham contracting · Fair Work Ombudsman — independent contractor changes · Fair Work Ombudsman — casual employees · Fair Work Ombudsman — becoming a permanent employee · ATO — difference between employees and independent contractors · ATO — myths and facts · ATO — employees incorrectly treated as independent contractors · ATO — super for independent contractors · ATO — labour-hire firms and their workers
