Is your contractor actually an employee?
A run of recent regulator activity and a major shake-up to the Fair Work Act show that the labels and handshake deals common in agriculture and family-run businesses can carry far more legal weight than owners realise.
On the land and in family-run businesses, a lot still runs on trust. A quick yarn at the gate. "You right to start Monday?" Paperwork "sorted later"... if at all. Someone gets called a contractor because they've got an ABN and bring their own ute.
None of that is unusual, and most of it is well intentioned. The problem is that workplace law no longer cares much about the label on the arrangement. It cares about what is actually happening on the ground. And when the two don't match, it is almost always the business owner who carries the risk.
Several developments over the past two years, a rewritten definition of "employee" in the Fair Work Act, tougher casual employment rules, and a sharp increase in regulator attention on misclassification mean that informal arrangements which once flew under the radar are now a genuine compliance exposure for small and family businesses.
What changed
For most Australian workers "national system employees" under the Fair Work Act 2009 the rules around who counts as an employee shifted significantly on 26 August 2024 under the Closing Loopholes No. 2 reforms.
Before then, a series of High Court decisions had put the written contract front and centre: if the paperwork said "contractor," that label was given a lot of weight. The new definition pulls the focus back to reality. Courts and the Fair Work Commission now assess the real substance, practical reality and true nature of the working relationship — a multifactorial test that weighs things like control over how the work is done, who carries the commercial risk, whether the worker is running their own genuine business, and how integrated they are into yours.
In plain terms: you can write "independent contractor" at the top of an agreement, but if the person turns up when you tell them, does the work the way you direct, uses your gear, and looks for all the world like one of your team, the law may well treat them as an employee with all the entitlements that follow.
At the same time, the Australian Taxation Office and the Fair Work Ombudsman have publicly signalled that sham contracting is a priority, with both regulators flagging concerning patterns across several industries and urging businesses to review their arrangements. For sectors that lean heavily on contractors, casuals and seasonal labour, agriculture very much included, that is a clear warning shot.
Case 1: "He had an ABN, so he was a contractor"
In a Federal Court matter that has become a reference point for HR practitioners, a small business directed several workers to obtain ABNs and sign contractor agreements, even though they kept doing the same work, under the same direction, paid by the hour, as they always had. Some signed simply because they felt they had no real choice if they wanted to keep their jobs.
The Court found the arrangement was a sham. It reaffirmed that labels do not determine the legal status of a relationship, what matters is the reality of how the work is performed, who controls it, who bears the risk, and whether the worker is genuinely running a business of their own. Total penalties of $197,000 were imposed against the business and its director, with the involvement of vulnerable workers treated as an aggravating factor.
Learnings for business owners
An ABN, an invoice and a signed "contractor agreement" do not, on their own, make someone a contractor. Sham contracting breaches sections 357 and 358 of the Fair Work Act, and penalties can run into six figures per contravention, with separate penalties available against the individuals involved, including hands-on owners and managers.
The safest move is to test the relationship honestly against the substance: Who directs the work? Whose equipment? Could the worker realistically knock back the job, or send someone else? Is this person genuinely in business for themselves? If the answers point toward "employee," correcting it now is far cheaper than back-paying superannuation, leave and entitlements later, often with penalties on top.
Case 2: The "casual" who never really left
Consider a common situation in agriculture. A worker comes on during a busy season as a casual. The season ends, but the work doesn't, they stay on, rostered week after week, year after year, on the same shifts, treated by everyone as a permanent member of the crew. The only thing that hasn't changed is the word "casual" on their payslip.
The definition of casual employment also changed on 26 August 2024. A casual employee is now assessed on whether there is an absence of a firm advance commitment to continuing and indefinite work, looking at the real substance of the arrangement, not just what the contract says at the start. On top of that, an "employee choice" pathway lets eligible casuals notify their employer in writing that they believe they no longer meet the casual definition (generally after 12 months for a small business employer, six months otherwise).
Learnings for business owners
A long-running "casual" who works predictable, regular hours may have quietly become a permanent employee in substance, which can bring entitlements such as paid leave and notice into play, and can expose the business to claims if it gets the conversion process wrong.
Two practical steps make a real difference. First, review long-term casuals against the current definition rather than assuming the original label still holds. Second, make sure you are meeting the Casual Employment Information Statement obligations, casuals must receive it at the start, and (for non-small businesses) at the six and twelve-month marks and periodically after that. Getting the paperwork and the reality aligned protects everyone.
Case 3: The family arrangement that quietly grew
Picture a relative who started out "just helping in the shed." Over a few years they took on more — running day-to-day operations, managing other staff, making purchasing decisions. The title changed in conversation, the responsibility changed in practice, but there was never anything in writing. Then the relationship sours, or the business is sold, and suddenly the question of what was actually agreed, pay, notice, entitlements, even whether they were an employee at all, becomes a dispute.
This is one of the most under-appreciated risks in family and owner-operated businesses. Roles evolve informally over years, and the original (often non-existent) terms stop matching what the person is really doing.
Learnings for business owners
Any time there is a significant change in someone's role, the type of work, their seniority, the responsibilities they carry, that is the moment to put something in writing.
Without it, the risk only grows. A person who started in a junior role and worked up to running the operation may be entitled to far more on exit than anyone assumed, particularly around notice. Documenting the relationship as it changes is not about distrust; it is about protecting the business and the people in it from a costly argument down the track.
The bottom line
Taken together, these situations point to a single lesson: in farming and family businesses, informality is not the same as flexibility. More often, it is the opposite, it removes the certainty everyone relies on when something goes wrong.
When a working relationship is questioned, regulators and the Fair Work Commission will look closely at:
Substance over label: what is actually happening, not what the contract or payslip says.
Control and integration: who directs the work, and how embedded the person is in the business.
Commercial risk: whether the worker genuinely operates a business of their own.
Consistency over time: whether the arrangement still matches the original terms, or has drifted.
Documentation: whether the relationship was captured clearly in writing, and kept up to date as it changed.
People wouldn't sell a property on a verbal nod and no contract, there's too much at stake. Employment and contracting relationships deserve the same care. If it isn't written down, and it doesn't reflect reality, you are carrying a risk you may not even know you have.
A short review of how your workers are classified, how your casuals are tracking, and what you actually have in writing is one of the highest-value, lowest-cost compliance steps a small business can take.
This article is general information only and does not take into account your specific circumstances. It is not legal advice. For tailored support reviewing worker classifications, casual arrangements, contracts and broader HR and WHS compliance, get in touch with Delegated Solutions.
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