An employee is someone who performs work under a contract of employment.

Under the Fair Work Act (Cth), the real substance, practical reality and true nature of the relationship will point to whether the relationship falls within the ordinary meaning of employer and employee [s 15AA(1)]. The totality of the relationship must be considered, including the terms of the contract, but also other factors relating to the totality of the relationship including how the contract is performed in practice [s 15AA(2)].

There are some outworkers who may be deemed to be employees by the the Fair Work Act 2009 (Cth) [ss 4, 30F, 47 - 48, 200] and the Fair Work Act 1994 (SA) [s 5]. Under the Fair Work Act 2009 (Cth) outworkers include individuals who for the purpose of a contract for services perform work in thetextile, clothing or footwear industry at residential premises or other premises that would not conventionally be regarded as business premises [s 12]. Under the Fair Work Act 1994 (SA), an outworker includes a person engaged to work on, process, clean or pack articles and materials or carry out clerical work at a premises that would not conventionally be regarded as business premises. This does not, however, include, residential cleaners [s 5(3)].

Since 26 August 2024, the Fair Work Act 2009 (Cth) has provided for regulated workers [s 15G]. These included employee-like workers and regulated road transport contractors.

An employee-like worker is a person who [s 15P]:

A regulated road transport contractor is a person who [s 15Q]:

For more information about regulated workers, see the Fair Work Ombudsman's information about regulated workers.

Those who are not employees or regulated workers may be 'independent contractors' or 'sub-contractors' engaged under a contract for services for another person or business.The legal consequences of being an independent contractor are significantly different to those for employees or regulated workers. Only an 'employee' can be covered by an award, make a workplace agreement or be entitled to the protections of the Fair Work Act 2009 (Cth) or the Fair Work Act 1994 (SA). The rights and obligations of employees are very different to those who are self-employed as independent contractors.

Workers who earn over a certain amount (contractor high income threshold) may elect that the ordinary meaning of employer and employee relationship does not apply [s 15AB - 15AD]. They can do this by giving their employer an opt out notice in accordance with the Act. The high income threshold for the year starting on 1 July 2024 is $175,000, which will be indexed each year [Fair Work Regulations 2009 (Cth) reg 1.08AA(2)].

Sham contracting

Sometimes an employer may attempt to incorrectly describe the true nature of a relationship so as to avoid responsibilities under various statutes and awards. The Independent Contractors Act 2006 (Cth) and the Workplace Relations Legislation Amendment (Independent Contractors) Act 2006 (Cth) came into effect on 1 March 2007 and apply to all independent contractor arrangements which involve a constitutional corporation (that is a foreign, financial or trading corporation), the Commonwealth or a Territory. These Acts impose penalties on businesses that use ‘sham arrangements’ to either disguise employees as independent contractors or coerce employees into independent contracting arrangements.

Under the Fair Work Act 2009 (Cth) an employer must not misrepresent an employment relationship as an independent contract (sham contracting) [s 357], must not dismiss an employee to engage them as an independent contractor [s 358] and must not make a false statement to encourage someone to be engaged as an independent contractor [s 359].

The tests to determine whether a worker is a contractor or an employee changed from 26 August 2024. Further information about the tests is set out on the Fair Work Ombudsman website.

See also the Fair Work Ombudsman's information about sham contracting.