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.
Contractor opt-out threshold rises to $190,100
What happened
From 1 July 2026, the contractor high income threshold is $190,100 a year. It was $183,100 the year before.
What it means for you
A contractor who earns more than this can opt out of the whole of relationship test in writing. They are then judged mainly on their contract. For everyone else, what counts is how the work really happens, not just what the contract says.
Source: Fair Work Commission. We check this page every week. Last checked .
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. Only one opt-out notice can be given per relationship, and the worker can withdraw it in writing 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. A business that thinks a worker above the threshold may be an employee can also invite them in writing to opt out, and the worker then has 21 days to give the notice. A worker can give only one opt-out notice per relationship and can withdraw it in writing at any time.
Contractor risk in Australia, removed by Teamed
- Direct employment relationship
- No opt-out notice to manage
- Correct entitlements from the start
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) who earns more than the contractor high income threshold may give the hiring business a written opt-out notice stating that they believe their earnings under the relationship are above the threshold, and the start of relationship test then applies from that date instead of the whole of relationship test. A business that considers a worker above the threshold may be an employee under the whole of relationship test may notify them in writing that they can opt out, and the worker then has 21 days to give the notice. A worker can give only one opt-out notice per relationship and can withdraw it in writing at any time, after which the whole of relationship test applies again from the day of withdrawal. (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) |
| New road transport contractor high income threshold, from 7 July 2026 | The Workplace Relations Legislation Amendment (Building Cooperative Workplaces No. 1) Act 2026 created a separate road transport contractor high income threshold for regulated road transport contractors, used instead of the contractor high income threshold for certain entitlements and protections. A regulated road transport contractor earning below that amount cannot give a notice opting out of the whole of relationship test. The amount is to be set by the Fair Work Regulations and had not been set as at 29 September 2026. (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.
