Key takeaways
- A signed contract and an ABN are useful evidence, but they do not settle whether a worker is a contractor, because the working relationship carries more weight.
- The practical test looks at control, tools, risk, other clients and the way the worker is paid, and no single factor decides the matter on its own.
- A builder who directs the method and the hours of a worker is usually running an employment relationship, however the paperwork describes it.
- Good records make a genuine contracting arrangement easier to defend, but they cannot create one that the working day contradicts.
- Arrangements drift over time, so the classification should be checked again whenever the work, the hours or the supervision change.
Few questions on a residential site cause more trouble than whether the person working alongside the crew is an employee or a contractor. The answer decides who carries the tax, the superannuation, the workers compensation and the risk if someone is hurt, and it often surfaces only after an injury, a dispute over the final invoice, or a visit from someone who wants to know why the same person has worked for the same builder for years.
This article covers the practical test a builder can apply on site and the paperwork habits that make a genuine contracting arrangement easier to defend. It does not go into payroll mechanics. The tax, superannuation and workers compensation consequences of a classification are real, and they belong in a separate conversation with an accountant or adviser who knows the individual’s position.
What the builder is really deciding is how the work is organised. A signed subcontract with an ABN attached is evidence, but it is not the answer. If the working day looks like employment, the label on the paper will not carry much weight when the question is asked.
Site work makes the question harder than it looks in an office. Every worker on a site is subject to the same induction, the same safety rules and the same site supervision, and a subcontractor who follows those rules is not automatically an employee. The line is drawn at the way the work itself is directed, paid and risked. Keeping that line clear is far easier when it is drawn before the first invoice, rather than argued after an injury.
Why the label on the paper is not the answer
Many builders assume a contract settles the matter. The arrangement is written down, the worker has an ABN, the invoices are issued per job and the worker carries their own public liability insurance. That is a good start, but it does not decide the question, because the question is about the substance of the relationship rather than its form. Federal workplace law treats a written arrangement that disguises an employment relationship as a sham, and the courts look past the paperwork to the way the work is actually carried out.
The principle is simple to state and easy to lose on a busy site. The contract describes what the parties intended. The working day describes what they actually agreed to in practice, and when the two diverge, the working day is the more persuasive evidence.
The test a builder can apply on site
Courts and inspectors look at the whole relationship rather than working through a checklist with a score. In practical terms they ask how much control the principal exercises over the work, who supplies the tools and equipment, whether the worker can refuse work or send someone else in their place, whether the worker runs a business that can make a profit or a loss, how the worker is paid, and how long the relationship has lasted. No single factor decides it. A worker who supplies their own tools but is told the hours, the sequence and the standard of every task may still look like an employee.
A builder can ask the same questions before the engagement starts, and again every few months. The point is to notice when the answers have drifted, not to build a file that says the right things on paper.
Contractor or employee in practice
| Usually looks like a contractor | Usually looks like an employee |
|---|---|
| Quotes a fixed price for a defined scope | Paid for the hours worked or the days attended |
| Supplies their own tools, vehicle and equipment | Uses the builder’s tools and plant |
| Decides how and when the work is done, to the standard agreed | Takes direction on the order, timing and method of each task |
| Has other clients, or is free to take them | Is in practice available only to the one builder |
| Carries the cost of a job that runs over | Is paid the same whatever the day costs |
Control: who decides how, when and where the work is done
Control is where most arrangements go wrong. A builder who sets the start time, tells the worker which house to attend each morning, directs the order of the trades and supervises the detail of each task is exercising the control of an employer. That is normal on a site for employees, and it is the reason the same supervision applied to a contractor is hard to defend. The builder’s legitimate interest is in the result: the work meets the specification, it is inspected, it is finished by the date agreed and it meets the standard the contract requires. How the contractor gets there is theirs.
There is a difference between directing the result and directing the process. A subcontractor can be told that the frame must be square by the Tuesday and that the inspection is on the Thursday. They should not be told which order to fix the noggings in, which crew to bring, or that they must be on the site from first light. The more a builder reaches into the method, the more the arrangement starts to look like employment, whatever the contract says.
Site rules are the exception that causes confusion. Every worker on a site must be inducted, must follow the site’s safety rules and must stop when the principal contractor directs a stop for safety. Those requirements apply to contractors and employees alike, and they do not, by themselves, make the worker an employee. The distinction is between rules that protect everyone on the site and direction about how a person’s own work is done.
Tools, risk and who carries the cost of a bad day
The question of tools, risk and profit gets less attention than it deserves. A genuine contractor usually supplies their own tools, vehicle, phone and insurance, and carries the cost of a bad day: a job that runs over, a fault that has to be fixed in their own time, or a quote that turns out to be too low. An employee is paid for their time, and the builder carries the risk of the day. Where a worker uses the builder’s tools and vehicle, is paid by the hour with no cost to them when a job runs late, and has no way of making more money by working more efficiently, the arrangement leans heavily towards employment.
Insurance is worth a closer look. A worker who holds their own public liability insurance, and any other cover the work requires, looks like a business. A worker who is covered only under the builder’s policy, with no independent cover of their own, does not.
Pay structure matters as well. A quoted price for a defined piece of work sits comfortably with a contractor, while a daily rate with timesheets and the builder’s approval of hours looks like wages. There is nothing wrong with a day rate as a commercial arrangement, but it is a different relationship, and the paperwork should describe it honestly rather than dress it up as a quote.
Who else the worker works for
The genuine contractor usually has other clients, or at least the freedom to take them. The ability to work for others, to advertise, to tender for other jobs and to say no to work is one of the strongest signs of a real business. A worker who has been on one builder’s books for a long time, and who could not realistically take another job without that builder’s agreement, is not in business on their own account in any meaningful sense, whatever the paperwork says.
That is not an argument against long-running subcontracts. Many builders use the same trusted trades for years, and that is a sound way to run a business. It is an argument for checking whether the freedom to work elsewhere is genuinely there, and for making sure the worker knows it is there.
A practical test is to ask whether the worker has turned down work, or could. A worker who has never refused a job, who is always available, and who would be out of work if one builder stopped calling is in a very different position from someone with a steady book of clients. The answer is not always obvious from the outside, so ask the question directly and write the answer down.
Exclusivity deserves a deliberate decision. A builder who wants a trade to be available first, or to work only on their jobs, can negotiate that, but it should be written into the arrangement and paid for. Exclusivity that is simply assumed, with no agreement and no payment for it, is one of the features that tilts an arrangement towards employment.
Paperwork habits that make an arrangement defensible
Good paperwork does not create a contractor. It records one that already exists, and that is why the habits matter. A written subcontract that sets out the scope of work, the price, the payment terms and the standard of work is a sensible starting point. The worker’s ABN and any licence or registration the trade requires should be checked and kept on file. Current insurance certificates belong on the same file, with the expiry dates noted so that a lapse is spotted before it becomes a problem. Invoices should be issued per job or per milestone, not as a weekly pay sheet with the same hours each week.
Paperwork habits that hold up
- A written subcontract that sets out the scope, the price and the payment terms
- The worker’s ABN checked and recorded on the job file
- Licence or registration checked wherever the trade requires one
- Current public liability and any other required insurance, with the expiry noted
- Invoices issued per job or per milestone, not as a weekly timesheet
- The worker’s own tools, vehicle and equipment recorded as theirs
- A dated note of the agreed scope, reviewed whenever the arrangement changes
The Service NSW guidance on individual contractor licences is the place to check whether a worker operating in their own name needs a licence of their own. The Building Commission NSW material on contracts, insurance and compliance for trades is worth keeping alongside the subcontract, and the GST and BAS article for builders covers how paying contractors interacts with those obligations. Neither document settles the classification for a particular worker, but both are the sort of material a builder should be able to show was used.
When a subcontractor starts to look like a labourer
The classification can change over time even when nobody intends it to. A subcontractor who has worked exclusively for one builder for years, who is brought into the office for the Monday meeting, who has been given a company shirt and a key to the store, and who is now asked to start first thing each morning like the labourers, has drifted. The change happened one reasonable request at a time. The fix is to notice it. Either the arrangement is brought back into the shape of a contract, with the worker free to refuse work, to send someone else and to take other jobs, or the relationship is treated as employment and the obligations that go with it are met.
A review habit helps. When the scope, the hours, the supervision or the tools change on a job, that is the moment to revisit the classification, not the moment an invoice is disputed. A short note on the file, recording what changed and why, is enough to show the question was considered, and it gives the builder a better answer if anyone asks later.
Keep the scale of the arrangement in mind as well. A single small job for a trusted subcontractor who runs a business of their own is a very different thing from a standing arrangement that places the same person on every job the builder runs for a year. The second is more likely to be questioned, and the records should reflect the difference rather than treat both as the same kind of engagement.
Be particularly careful with supervisory roles. A supervising carpenter who directs the work of others on the site is often in a different position from a subcontractor who delivers a finished element. A builder who gives a subcontractor the authority of a supervisor should expect the arrangement to be looked at more closely, because the supervisor’s role is itself a sign of control.
Worked example: a bricklayer on a western Sydney project
A builder in western Sydney had employed a bricklayer on and off for several years. The bricklayer had an ABN, a signed subcontract that had been renewed each year, and invoices that the builder paid each fortnight in the same amount. The bricklayer used the builder’s scaffold and mixer, started at the same time as the rest of the crew, and was told each morning which elevation to build. The builder thought of him as a subcontractor because the paperwork said so.
A fall from the scaffold put the bricklayer in hospital for a long period, and his representative asked whether he had been an employee. The builder’s insurer wanted the classification clarified before it would deal with the claim. The builder produced the subcontract and the ABN first, because those were the documents he had. They were not the evidence that counted. The working arrangements were, and the builder could not show that the bricklayer had the freedom to refuse work, to bring his own crew or to take other jobs.
The lesson is not that the builder should have dropped the bricklayer. He could have kept the relationship as a genuine subcontract by changing how it worked: agreeing a fixed scope and price for each elevation, letting the bricklayer set his own start time and bring his own equipment, allowing him to take work elsewhere, and documenting each change as it happened. Had that been done before the fall, the questions in the claim would have been about the contractor’s own safety systems, not about whether the builder had employed him. The working day would have carried the weight, and the paperwork would have matched it.
Lead in. The mistake that costs the most is treating a signed contract and an ABN as proof of a contracting relationship, when the working day tells a different story.
Before the next invoice is paid, look honestly at who sets the hours, who supplies the tools and who carries the cost of a bad day on your own jobs. The principal contractor duties that come with the site follow the arrangement as well, and the principal contractor duties article for NSW residential work sets out what those are.
For the wider picture of the NSW requirements that builders work within, the PointCPD guide to NSW builder CPD is the place to start.
Questions builders ask
If my subcontractor has an ABN and a signed contract, are they automatically a contractor?
No. Those documents are useful evidence, but the question is answered by the working relationship, which is the substance of how the work is done and controlled. A contract that describes a contractor can still be set aside by the way the worker is directed, paid and supervised on the job.
What is the single most important factor in deciding classification?
There is no single factor that decides the matter. The question is considered across the whole relationship, including how much control you exercise, who supplies the tools, whether the worker carries the cost of a bad day and whether they are free to work for others. Control over the method of the work is often the factor that causes the most trouble.
Can I tell a subcontractor when to start and finish each day?
Setting the hours of a worker who is supposed to be a contractor is one of the clearest signs of employment. You can set the date by which a defined piece of work must be finished and the standard it must meet, and leave the working day to the contractor.
Does a long-running arrangement with the same trade make them an employee?
Not by itself. Many builders use the same trusted trades for years, and that is a normal business relationship. What matters is whether the worker still has the freedom to refuse work, take other jobs and run their own business, and whether the arrangement has drifted toward direction and dependence.
Do I need the worker’s own insurance if they are a genuine contractor?
Usually yes. A worker who carries their own public liability insurance, and any other cover the trade or the work requires, looks like a business in its own right. Keep the certificates on the job file with the expiry dates noted, and check them again before the cover lapses.
Where should I go for advice on tax and superannuation consequences?
Get advice from an accountant or adviser who handles employment and tax matters for builders. The classification affects tax, superannuation and workers compensation obligations, and the detail depends on the individual circumstances, which is outside the scope of this article.
Sources
- Continuing professional development for builders and swimming pool builders · NSW Government
- General building work licensing · NSW Government
- Home Building Act 1989 (NSW) · NSW Legislation
Published 23 September 2026. General information for builders, not legal, financial or engineering advice for a specific job. Check current requirements with the relevant regulator or standard before relying on them.
