Employee vs independent contractor: the whole of relationship test
Since 26 August 2024, whether someone is an employee or a contractor is decided by the real substance, practical reality and true nature of the relationship, not the written contract alone. High income contractors can opt out and be assessed under the old contract-only test instead.
The Fair Work Act's whole of relationship test, sections 15AA to 15AC, took effect on 26 August 2024 and overturned the High Court's 2022 Personnel Contracting and Jamsek decisions, which had said that where a written contract comprehensively set out the parties' rights and duties, the contract alone decided whether someone was an employee or a contractor, regardless of how the work actually played out. The new test looks at the whole relationship: how the contract is actually performed, who controls how, when and where the work is done, who bears commercial risk, and how independently the person really operates, alongside the written terms. There is no single deciding factor. A contractor earning above the contractor high income threshold, which is $190,100 for the 2026-27 financial year, can give a written opt-out notice under section 15AB (in force since 27 February 2024) and instead be assessed under the older, contract-focused test, and can revoke that notice at any time.
What changed on 26 August 2024?
The Fair Work Act gained a statutory definition of employment that looks at the real substance, practical reality and true nature of the relationship, reversing the High Court's contract-only approach from Personnel Contracting and Jamsek. Businesses now need to look at how a working relationship actually operates, not just what the contract says.
What factors matter under the whole of relationship test?
There is no single deciding factor. Relevant considerations include control over how, when and where work is done, whether the person can delegate or subcontract the work, who provides tools and equipment, who carries the commercial risk, how the person presents to the public, and the tax and superannuation arrangements in practice, weighed alongside the contract's written terms.
Can a contractor opt out of the new test?
Yes, if they earn above the contractor high income threshold, $190,100 for the 2026-27 financial year. They can give a written opt-out notice, after which the older start of relationship test (focused on the contract) applies instead. Either party can revoke the opt-out at any time in writing.
Who handles this if you hire through Teamed?
This is exactly the risk an Employer of Record removes: when Teamed employs someone directly in Australia, there is no independent-contractor relationship to reassess under the whole of relationship test, no opt-out notice to manage, and no exposure if a status call turns out to be wrong. Your team member is simply, correctly, an employee.
Key figures
| Detail | Value |
|---|---|
| What section 15AA does | Section 15AA provides that whether an individual is an employee or an independent contractor is determined by ascertaining the real substance, practical reality and true nature of the relationship, having regard to the totality of the relationship, including both the terms of the contract and how the contract is performed in practice. (source) |
| What it overturns | In CFMMEU v Personnel Contracting [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2, the High Court held that where the parties rights and duties are comprehensively set out in a written contract not challenged as a sham, the character of the relationship is decided by the terms of that contract alone, not by how it was performed in practice. Section 15AA legislates a return to a multi-factor approach that also considers how the relationship actually operates. (source) |
| Multi-factor, practical reality approach | There is usually no single deciding factor. Fair Work Ombudsman guidance directs consideration of the whole relationship: control over how, when and where work is done, ability to delegate or subcontract, provision of tools and equipment, who bears commercial risk, presentation to the public, taxation and superannuation arrangements, and how independently the person actually operates, weighed alongside the written contract terms. (source) |
| Opt-out mechanism, section 15AB | An individual contractor (engaged personally, not through a company or trust) whose earnings under the contract exceed the contractor high income threshold at the time of the notice may give the hiring business a written opt-out notice within 21 days; the business may also invite the contractor to opt out. Once validly opted out, the pre-2024 start of relationship test applies instead of the whole of relationship test, and either party can revoke the notice in writing at any time. (source) |
| Contractor high income threshold, 2026-27 financial year | $190,100 for the financial year starting 1 July 2026, set by the Fair Work Regulations and adjusted annually on 1 July. It was $183,100 for the year starting 1 July 2025, and $175,000 when the opt-out regime began in 2024. (source) |
| Commencement dates of sections 15AA and 15AB | Section 15AA (the whole of relationship test and statutory definition of employment) commenced 26 August 2024. Section 15AB (the opt-out mechanism) commenced earlier, on 27 February 2024, the day after the Closing Loopholes No. 2 Act received Royal Assent, so that opt-out notices could be given by high income contractors before section 15AA took effect. (source) |
Frequently asked questions
Does the whole of relationship test apply to every contractor?
It applies to constitutionally covered businesses assessing whether someone is an employee under the Fair Work Act. High income contractors, above the contractor high income threshold, can opt out and be assessed under the earlier contract-focused test instead.
What was the position before 26 August 2024?
Following the High Court's 2022 Personnel Contracting and Jamsek decisions, a comprehensive written contract not challenged as a sham decided the relationship's character on its own, regardless of how the work was actually carried out in practice.
What happens if we get the classification wrong?
Misclassifying an employee as a contractor can mean back pay, unpaid superannuation, and Fair Work Act penalties. An Employer of Record removes this risk entirely for roles that function like employment, since the person is a genuine employee from day one.
The Closing Loopholes reforms are Australia's biggest overhaul of the Fair Work Act in years. When Teamed is your legal employer, we track every change and update your contracts, policies and payroll as the law lands, so you never have to read a statute to stay compliant.
