ABN for Contractors (2026): Are You Really a Contractor, and What Changes If You Are?

"Just get an ABN and invoice us" is one of the most common sentences in Australian hiring — and one of the riskiest. For a genuine contractor, an ABN is the right tool: free, quick and expected by every client. For someone who is really an employee, it's a label that changes nothing about their legal status and can expose the business to back-pay, super charges and sham contracting penalties. This guide is for tradies, freelancers, IT and professional contractors, and the small businesses that engage them. It explains the tests that decide employee or contractor in 2026, the 2022 High Court cases and the 2024 Fair Work change, super for ABN workers, the personal services income rules, and what a contractor with an ABN is responsible for.

Quick answer

A contractor running their own business should hold an ABN — it's free to apply, and without one clients must withhold 47%. But an ABN doesn't make someone a contractor. For tax and super, the ATO looks at the contract's rights and obligations (High Court, 2022); for Fair Work purposes, most incorporated businesses must look at the whole relationship in practice (from 26 August 2024). Get it wrong and the worker is owed wages, leave and super.

• Employees aren't entitled to an ABN, and employers shouldn't require one

• Contractors paid mainly for their labour are owed 12% super — even with an ABN

• Sham contracting: up to A$109,200 per contravention for a business with fewer than 15 employees

• Earn over A$190,100? A contractor can opt out of the whole of relationship test

• PSI rules can limit deductions unless you pass the results test or the 80% rule plus another test

Why an ABN doesn't decide whether you're a contractor

An ABN is an identifier for an entity carrying on an enterprise. The Australian Business Register is explicit that you're not entitled to one for work you do as an employee — including as an apprentice, trade assistant or labourer — even if you or the business calls the arrangement contracting. It also says an employer shouldn't ask you to get an ABN as a condition of employment.

So the order of questions is: first, is this person genuinely running their own business and providing services to clients? If yes, they should hold an ABN and invoice. If no, they're an employee, the ABN is irrelevant (and shouldn't have been issued for this work), and the business has employer obligations: PAYG withholding, super, award wages, leave and workers compensation.

The difficulty is that "employee or contractor" is answered by two different areas of law, using two slightly different tests:

• Tax and super (ATO): what matters is the legal rights and obligations in the contract.
• Workplace rights (Fair Work Act): for most incorporated businesses since 26 August 2024, what matters is the real substance and practical reality of the whole relationship.

Usually the answers line up. Occasionally they don't — which is why both deserve a careful look.

The 2022 High Court cases: contract first

On 9 February 2022 the High Court handed down two decisions that reset the law on employment status.

In CFMMEU v Personnel Contracting [2022] HCA 1, a labourer had signed a labour-hire agreement describing him as a self-employed contractor. The company placed him on building sites, where he worked under the builder's direction. The majority held he was an employee of the labour-hire company: looking at the rights the contract gave the company — including the right to decide whom he worked for and to control his work — he was serving in its business, whatever the document called him.

In ZG Operations v Jamsek [2022] HCA 2, two truck drivers who had once been employees had, decades earlier, set up partnerships with their wives, bought their own trucks and contracted through those partnerships to provide delivery services. The High Court held they were not employees: the contracts were between the company and the partnerships, which supplied the trucks and bore the costs.

The common thread: where the parties have a comprehensive written contract, its terms — the legal rights and obligations — decide the relationship, not a broad survey of how things played out, and not the label. The ATO adopted this approach for tax and super. Its guidance asks whether the worker serves in your business as its representative, or provides services to your business to further their own business. The old indicators — control, ability to delegate, who supplies tools, who bears the risk, how payment is calculated — still matter, but only as they appear in the contract's terms.

Employee or contractor? The usual indicators

Indicator	Points to employee	Points to contractor
Control	Business directs how, when and where the work is done	Worker decides how to do the work, within agreed specifications
Delegation	Must do the work personally	Free to delegate or subcontract and pay the substitute
Payment	Paid for time worked (hourly, daily, weekly)	Paid for a result — a quote or fixed price per job
Tools and equipment	Supplied by the business	Supplied by the worker, at their cost
Risk	Business bears the cost of defects	Worker must fix defects at their own cost; carries insurance
Business of their own	Works only for this business, part of its organisation	Advertises, has several clients, builds their own goodwill
Ongoing work	Expectation of continuing work	Engaged for a specific task or period

Control

Points to employee

Business directs how, when and where the work is done

Points to contractor

Worker decides how to do the work, within agreed specifications

Delegation

Points to employee

Must do the work personally

Points to contractor

Free to delegate or subcontract and pay the substitute

Payment

Points to employee

Paid for time worked (hourly, daily, weekly)

Points to contractor

Paid for a result — a quote or fixed price per job

Tools and equipment

Points to employee

Supplied by the business

Points to contractor

Supplied by the worker, at their cost

Risk

Points to employee

Business bears the cost of defects

Points to contractor

Worker must fix defects at their own cost; carries insurance

Business of their own

Points to employee

Works only for this business, part of its organisation

Points to contractor

Advertises, has several clients, builds their own goodwill

Ongoing work

Points to employee

Expectation of continuing work

Points to contractor

Engaged for a specific task or period

The 2024 Fair Work change: whole of relationship

Parliament responded to the High Court through the Closing Loopholes No. 2 reforms. From 26 August 2024, the Fair Work Act's ordinary meaning of employee and employer is decided by the real substance, practical reality and true nature of the relationship, looking not just at the contract's terms but at how it's performed in practice. The Fair Work Ombudsman calls this the whole of relationship test.

The new test applies to constitutionally covered businesses — in practice, Pty Ltd and other trading or financial corporations, foreign corporations, the Commonwealth and businesses in the territories — for work from 26 August 2024. The older start of relationship test, based on what the parties agreed, still applies to work before that date and to state-referred national system businesses: sole traders, partnerships, other unincorporated entities and non-trading corporations in New South Wales, Victoria, Queensland, South Australia and Tasmania.

So a plumber operating as a sole trader in Brisbane who engages a subcontractor applies the start of relationship test for Fair Work purposes, while a Pty Ltd plumbing company in the same street applies the whole of relationship test. Both use the ATO's contract-based approach for tax and super.

The opt-out for high earners

A worker who earns more than the contractor high income threshold — A$190,100 from 1 July 2026, indexed every 1 July — can give the business a written opt-out notice. From that date, the start of relationship test applies to them instead of the whole of relationship test. The notice must state that the worker believes their earnings under the relationship exceed the threshold. The worker can withdraw it in writing at any time, and the whole of relationship test applies again from the day it's withdrawn.

The opt-out doesn't let anyone simply choose contractor status — a test still applies. It suits senior IT, engineering and consulting contractors who want certainty that their negotiated arrangement won't be recharacterised.

How the rules got here

9 Feb 2022

High Court decides Personnel Contracting and Jamsek — contract terms decide status

26 Aug 2024

Whole of relationship test starts for constitutionally covered businesses under the Fair Work Act

17 Dec 2024

Latest update to the ATO's employee-or-contractor guidance, applying the contract-based approach for tax and super

1 Jul 2026

Contractor high income threshold rises to A$190,100; Payday Super starts

Sham contracting

Sham contracting is when a business tells a worker, or represents to them, that they're an independent contractor when they're actually an employee. Under the Fair Work Act (sections 357 to 359) it's unlawful unless the business can show it reasonably believed the worker was a contractor. It's also unlawful to knowingly make a false statement to persuade an employee to become a contractor doing the same or similar work, or to dismiss — or threaten to dismiss — an employee in order to re-engage them as a contractor for that work.

The Fair Work Ombudsman's own example is a factory owner who hires a fill-in worker for 12 months, tells him he must get an ABN and invoice, yet gives him set hours, the company's tools, direction and no ability to delegate. Telling the worker it's "too short to be a job" doesn't help — a fixed-term employment contract was always available.

Maximum sham contracting penalties per contravention (2026)

A$21,840

Individuals

A$109,200

Businesses with fewer than 15 employees

A$546,000

Larger businesses

A$364

Commonwealth penalty unit the figures are built on

Penalties are only part of the cost. A recharacterised worker can claim award wages, overtime and penalty rates, paid leave, notice and unfair dismissal rights. The ATO can assess the super guarantee charge for unpaid super and penalties for failing to withhold PAYG. A "reasonable belief" defence is much easier to show if you've actually worked through the indicators above, written a contract that reflects reality, and kept it under review as the relationship changed.

Super for contractors with an ABN

Super is where ABN arrangements most often go wrong, because super law has its own, wider definition of employee. The ATO says that if you pay an individual contractor mainly for their labour, they're an employee for super guarantee purposes — and it doesn't matter whether they have an ABN. "Mainly for labour" means the contract is:

• mainly for their labour — more than half its dollar value is for labour;
• for their personal labour and skills — payment doesn't depend on achieving a specified result; and
• performed by them — they can't delegate the work.

Super also applies to individuals doing domestic or private work for more than 30 hours a week, and to some sportspeople, artists and entertainers paid to perform or present, and people working on films and broadcasts.

It doesn't apply when you contract with a company, trust or partnership — the person doing the work isn't your employee for tax and super; their own business may owe them super. And it doesn't apply to an individual paid to achieve a result, like a painter quoting a fixed price for a job.

The amount is the super guarantee rate — 12% — on the labour component only. Exclude payments for materials and equipment, GST, and overtime paid at overtime rates. If the contract doesn't split labour from materials, the ATO accepts market values. Paying the contractor an extra 12% in their invoice doesn't count: the money must go to their super fund, and you must offer an eligible contractor a choice of fund within 28 days of starting (or request their stapled fund). From 1 July 2026, Payday Super means contributions are due with each payment, reaching the fund within 7 business days — see our superannuation guarantee guide.

Worked example: an ABN admin contractor

Is super payable for Nadia?

1. 1

   The arrangement

   A caravan park engages Nadia, who has an ABN, to answer phones and do admin 15 hours a week at A$45 an hour. She must do the work herself and invoices weekly. She's not registered for GST.

2. 2

   Apply the test

   The contract is wholly for her labour, she's paid by the hour rather than for a result, and she can't delegate. She's an employee for super guarantee purposes.

3. 3

   Work out the super

   15 × A$45 = A$675 a week. Super: 12% × A$675 = A$81 a week, on top of what she invoices — about A$4,212 a year.

4. 4

   Pay it on time

   Under Payday Super, the A$81 must reach her chosen fund within 7 business days of each payment.

   Tip: If the park instead hires a bookkeeping company that sends whoever is available, there's no super obligation for the park.

For a business, it often makes sense to pay super for a borderline contractor anyway. The ATO notes that a business engaging someone it believes is a contractor can choose to pay super to the worker's fund to make sure it isn't liable for the super guarantee charge — and write that into the contract.

Personal services income (PSI) rules

The PSI rules are a separate tax issue that hits genuine contractors — usually IT professionals, engineers, consultants and others whose income is mainly a reward for their own skills or effort. They don't make you an employee, but if they apply you can't claim certain deductions an independent business could (for example, rent for a home office or payments to an associate for support work), and you can't shift the income to a spouse or other entity through a company or trust.

You avoid the rules by self-assessing as a personal services business (PSB):

• the results test for at least 75% of your PSI — paid to produce a result, supplying your own tools and equipment, and liable to fix defects; or
• less than 80% of your PSI from one client (and its associates), plus one of the unrelated clients test, the employment test or the business premises test.

Associates count as one client. The ATO's example is an IT consultant who billed A$70,000 to one company and A$30,000 to its subsidiary — all A$100,000 counts as from one client, so the 80% rule fails. If you fail every test, you can ask the ATO for a PSB determination, or apply the PSI rules in your return.

Worked example. Sam, a software contractor, earns A$160,000 in a year: A$140,000 from one bank on an hourly rate, A$20,000 from two small clients. That's 87.5% from one client, and an hourly rate doesn't meet the results test. The PSI rules apply: Sam reports the income in his own name, and some deductions an independent business could claim, such as home office rent, are off the table. Our sole trader guide shows how the rules interact with sole trader tax.

What a contractor with an ABN must handle

Once you're genuinely in business, the obligations an employer would carry become yours.

Tax. Nobody withholds tax from your invoices (unless you don't quote your ABN), so set money aside. After your first return showing business income, you'll usually move into PAYG instalments. GST: register once your GST turnover reaches A$75,000, and charge 10% on top of your rates. Super: unless a client must pay it under the mainly-for-labour rule, your retirement savings are up to you. Insurance: public liability, professional indemnity and income protection — workers compensation generally won't cover a genuine contractor. Invoices: quote your ABN on every invoice; our invoice generator handles ABN and GST fields.

Price for all of this. A contractor charging the same hourly rate as an employee's wage is earning far less once super, leave, insurance, unpaid admin time and gaps between jobs are counted. Our hourly rate calculator builds those costs into a rate.

Businesses that pay contractors have their own reporting. Businesses mainly in building and construction, cleaning, courier and road freight, IT, and security, investigation or surveillance services generally report contractor payments to the ATO in a taxable payments annual report due 28 August — see our TPAR guide.

Before engaging someone on an ABN

0/7

• Check the ABN is active on ABN Lookup, and whether it's for an individual, company, trust or partnership
• Work through the indicators: control, delegation, payment for results, tools, risk, other clients
• Write a contract that reflects how the work will really be done — and review it if that changes
• Decide whether super is payable under the mainly-for-labour test; if unsure, pay it
• Never require an ABN as a condition of a job
• Check whether TPAR reporting applies to your industry
• Keep evidence of your reasoning — it supports a reasonable-belief defence

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Common mistakes and how they get fixed

"They have an ABN, so they're a contractor." The ABN is irrelevant to the test. Fix it by reviewing each arrangement against the indicators, converting genuine employees to employment contracts, and paying any super and wages owed. Fixing it yourself, early, is far cheaper than having it found in an ATO or Fair Work audit.

Labour hire confusion. If you pay a labour-hire firm for a worker, your contract is with the firm, and the firm handles PAYG withholding, super and fringe benefits tax. Paying the worker directly on an ABN changes that.

Ignoring the second test. A contract carefully drafted to satisfy the High Court test can still fail the whole of relationship test if the work in practice looks like employment. Since 26 August 2024, incorporated businesses need to check both.

Topping up the invoice instead of paying super. An extra 12% paid to the contractor isn't a super contribution and doesn't stop the super guarantee charge.

Forgetting labourers and trade assistants. The ATO treats apprentices, trainees, labourers and trades assistants as employees for tax and super in every case.

Official links

• ATO — Difference between employees and independent contractors
• ATO — Super for independent contractors
• Fair Work Ombudsman — Independent contractors
• Fair Work Ombudsman — Opting out of the whole of relationship test
• Fair Work Ombudsman — Sham contracting
• ATO — Self-assessing as a personal services business
• ABR — ABN entitlement

What to do next

If you're starting out as a genuine contractor, apply for your free ABN, set a rate that covers tax, super and downtime, and keep a few clients rather than one. If you engage contractors, review each arrangement against both tests, sort out super under the mainly-for-labour rule, and set up payroll properly for anyone who is really an employee — our PAYG withholding guide and superannuation guarantee guide cover the employer side.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

Do I need an ABN to work as a contractor?

If you genuinely run your own business providing services, you should get an ABN — it's free. Without one, each business that pays you must generally withhold 47% of the payment. But an ABN doesn't make you a contractor: the ABR says you're not entitled to one for work done as an employee, even if the business calls it contracting.

Can my employer make me get an ABN?

No. The ABR says an employer shouldn't ask you to get an ABN as a condition of employment. If the job is really employment — set hours, directed work, the business's tools, no ability to delegate — calling it contracting doesn't change your status, and representing an employee as a contractor without a reasonable belief can be sham contracting under the Fair Work Act.

Do contractors with an ABN get superannuation?

Sometimes. If a business pays an individual contractor under a contract that's mainly for their labour — more than half its dollar value — they're treated as an employee for super guarantee purposes, ABN or not, and the business must pay 12% super on the labour part. Contractors paid to achieve a result, or engaged through their own company, trust or partnership, aren't covered.

What is the test for employee or contractor in Australia?

There are two. For tax and super, the ATO follows the 2022 High Court decisions: look at the legal rights and obligations in the contract and ask whether the worker serves in your business. For Fair Work purposes, from 26 August 2024 constitutionally covered businesses apply the whole of relationship test — the real substance, practical reality and true nature of the relationship, including how the contract works in practice.

What are the penalties for sham contracting?

Courts can order penalties for each contravention of up to A$21,840 for individuals, A$109,200 for businesses with fewer than 15 employees and A$546,000 for larger businesses. On top of that the business owes the worker's underpaid wages and entitlements, plus super guarantee charge and PAYG withholding consequences with the ATO.

What are the personal services income rules?

If most of your income is a reward for your personal skills or effort, the PSI rules may limit what you can deduct and stop you splitting income through a company or trust. You avoid them by self-assessing as a personal services business: meet the results test for at least 75% of your PSI, or pass another test and get less than 80% of your PSI from one client.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Difference between employees and independent contractors — Australian Taxation Office · accessed 11 October 2026
2. 2.Super for independent contractors — Australian Taxation Office · accessed 11 October 2026
3. 3.Independent contractors — Fair Work Ombudsman · accessed 11 October 2026
4. 4.Opting out of the whole of relationship test — Fair Work Ombudsman · accessed 11 October 2026
5. 5.Sham contracting — Fair Work Ombudsman · accessed 11 October 2026
6. 6.Increase to the application fee for 2026–27 (news) — Fair Work Commission · accessed 11 October 2026
7. 7.ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 — judgment summary — High Court of Australia · accessed 11 October 2026
8. 8.CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 (summary) — Wikipedia (secondary, corroborating) · accessed 11 October 2026
9. 9.ABN entitlement — Australian Business Register · accessed 11 October 2026
10. 10.Self-assessing as a PSB — Australian Taxation Office · accessed 11 October 2026