Why this is important before the 28 August TPAR deadline.
For trades and construction business owners, few issues create more headaches — and unexpected bills — than getting the difference between employees and subcontractors wrong.
An employee works in your business under your direction. You set their hours, decide how the work is done, supply tools and materials, and they generally work only for you. A genuine subcontractor, by contrast, runs their own business. They control how, when and where the work is performed (subject only to reasonable direction), supply their own tools and equipment, usually quote a fixed price for a specific result, and can often subcontract or delegate the work to others.
Getting this classification right matters because it drives your obligations for superannuation, PAYG withholding, workers’ compensation, and the Taxable Payments Annual Report (TPAR). The TPAR is due on 28 August each year and only covers payments you make to contractors in building and construction (and a few other industries). Payments to employees are reported through Single Touch Payroll instead. Misclassify someone and you can end up with backdated super guarantee charge, interest, and ATO penalties — sometimes years later when an audit or a complaint lands.
A cautionary case study from South East Queensland
CASE STUDY — COASTAL PLUMBING
Consider Coastal Plumbing (not their real name), a small residential plumbing business based in the Gold Coast hinterland. The owner engaged five qualified tradespeople on what he believed were subcontract arrangements. Each had an ABN, issued invoices, and was paid weekly. On paper it looked clean.
When the ATO reviewed the arrangements, the picture changed. The owner set the daily start times, directed the sequence of work on each job, supplied most materials and specialised tools from the company van, and the tradespeople worked almost exclusively for Coastal Plumbing. There was no genuine right for them to send someone else in their place. The ATO determined the workers were employees.
Coastal Plumbing faced a significant assessment for unpaid superannuation guarantee (including the SG charge and interest) plus penalties. The total came to around $50,000 once everything was calculated. The owner had treated the arrangements as contractor relationships for years and had no budget for the unexpected bill. The business survived, but the cash-flow hit and the time spent dealing with the ATO were painful.
This is not an isolated story. Similar reviews happen regularly in the trades sector across South East Queensland and the rest of Australia.
Practical indicators the ATO looks at
The ATO does not rely on a single factor or the label you put on the paperwork. It looks at the whole relationship. Here are the leading practical indicators used to decide whether someone is a bona fide subcontractor rather than an employee:
- Control — Does the worker genuinely decide how, when and where the work is done? A subcontractor can usually set their own start times (within job requirements), choose their methods, and decide the order of tasks. If you dictate daily schedules, exact methods, or require them to follow your detailed work instructions, that points strongly toward employment.
- Integration — Is the worker running their own independent business, or are they operating as part of yours? Subcontractors typically advertise their own services, carry their own business cards or branding, and can accept or refuse work. If they wear your uniform, use your email address, appear on your website as “our team”, or only work for you, the arrangement looks more like employment.
- Payment — Are they paid a fixed quoted price (or staged payments against a result), or are they paid by the hour, day or week for time worked? Genuine subcontractors usually quote a price for a defined outcome. Hourly or weekly rates with little variation look like wages.
- Ability to delegate or subcontract — Does the contract, and the practical reality, allow the worker to send someone else to do the work? A real right to subcontract or bring in their own labour is a strong contractor indicator. If the worker must personally perform the work and cannot send a substitute, that leans toward employee status.
- Tools, equipment and materials — Who supplies the tools, vehicle, and materials? Subcontractors generally bring their own tools and equipment and are not reimbursed for them. If you supply the majority of tools, the van, and materials, and the worker has little financial risk, the arrangement looks more like employment.
No single point decides the issue. The ATO weighs them together against the actual rights and obligations in the relationship — not just what the contract says on paper.
Practical steps trades owners can take
- Put clear written agreements in place that accurately reflect how the work is actually performed.
- Require contractors to invoice on their own letterhead or from their own accounting software.
- Confirm they have a valid ABN and, where relevant, their own public liability and workers’ compensation cover.
- Avoid setting rigid daily start and finish times or dictating exact work methods unless the nature of the job genuinely requires it.
- Use the ATO’s free Employee/Contractor Decision Tool (ato.gov.au/calculators-and-tools/employee-or-contractor) as a starting point and keep a copy of the result.
Remember: written agreements help, but they are not conclusive if the day-to-day reality is different.
THE DEADLINE
28 August — If you are paying people you treat as contractors in the building and construction industry, your TPAR must be lodged by that date, or a non-lodgment advice submitted if you no longer need to report.
So, how sure are you that you are getting this right in your business?
Lyndon Russell FIPA FFA
Director – Next Level Accountants
Author – Know Your Numbers
Office:0421 593 044
lyndon.russell@nextlevelaccountants.com.au
This article is general information only and does not take into account your particular circumstances. The case study is illustrative. Please seek advice specific to your business before acting.
