Agency Contractor vs Employee: The Risk Melbourne Agencies Miss

An ABN Doesn't Settle the Question

Most Melbourne agencies lean on a rotating pool of freelance designers, copywriters and developers to flex capacity around project demand, and the assumption is usually simple: the freelancer has an ABN, invoices for their work, and is therefore a contractor. That assumption is often wrong, and it's wrong in ways that create real exposure across three separate areas, income tax withholding, superannuation guarantee, and Victorian payroll tax, each governed by a different test that doesn't necessarily reach the same answer.

The Contract-First Test Since 2022

Two 2022 High Court decisions, Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting and ZG Operations v Jamsek, shifted how the courts assess a working relationship. Where the old approach weighed up how the relationship actually operated day to day, the current test looks primarily at the terms of the written contract itself: who controls how and when the work is performed, whether the worker can subcontract or delegate the task to someone else, who supplies the equipment and tools, and how integrated the person is into the business's operations. A freelancer who can't delegate the job, uses the agency's software and project management systems, and works to agency-set hours looks far more like an employee under this test, regardless of what the contract is titled or whether they invoice with an ABN.

Superannuation: A Wider Net Than Income Tax

Superannuation guarantee has its own, wider definition of employee under section 12(3) of the Superannuation Guarantee (Administration) Act, which captures anyone engaged under a contract that is wholly or principally for their labour, even where that same person is genuinely self-employed for income tax and GST purposes. In practice, this means a freelance copywriter paid to personally write content, rather than to deliver a defined outcome using their own staff and equipment, is very likely owed superannuation guarantee contributions regardless of the ABN and invoicing arrangement. Agencies that have never paid super on freelancer invoices should treat this as the first thing to check, not the last.

Victorian Payroll Tax: Relevant Contract Provisions

Victoria's payroll tax legislation includes relevant contract provisions that can deem payments to contractors as taxable wages for payroll tax purposes, unless one of the specific statutory exemptions applies, such as the contractor providing services to the public generally, working no more than 90 days in the financial year for that principal, or engaging their own additional labour to perform the work. An agency that relies heavily on a small, consistent pool of freelancers, each working well over 90 days a year and performing the work personally, can find a meaningful chunk of what it treated as contractor payments reclassified as taxable wages on payroll tax review, a liability that compounds with interest the longer it goes unaddressed.

Sham Contracting Penalties

Beyond the tax exposure, the Fair Work Act separately penalises sham contracting, knowingly or recklessly representing an employment relationship as a contracting arrangement, typically to avoid minimum entitlements like leave, notice and superannuation. Civil penalties for a business found to have engaged in sham contracting are substantial, and ignorance of the correct classification is not treated as a defence where the misclassification should reasonably have been identified.

KPIs and Records Worth Reviewing

• Contractor list by relationship type, control, delegation rights, equipment ownership, reviewed against current contracts, not assumptions.
• Superannuation exposure, flagged per contractor where the s12(3) labour test is likely met.
• Days engaged per contractor per financial year, tracked against the 90-day Victorian payroll tax exemption threshold.
• Contract review date, every freelancer agreement checked against the post-2022 contract-first test, not just renewed on autopilot.