- Who is involved and why classification matters
- The test that decides whether someone is an employee
- Where duration and exclusivity actually fit
- What happens when the arrangement is really employment
- The tax dimension of working for one client
- New rights for long-term contractors
- Where sole traders and companies usually get caught
- When to bring in a lawyer
- Watch the drift, not the calendar
No Australian law sets a maximum time that a sole trader can work for one company. You can invoice the same client for years without tripping any statutory time limit, and no regulator will penalise you simply for staying. The rule that actually governs these arrangements works differently. There is no clock, but there is a test, and the longer and more exclusive the relationship, the more often that test gets asked.
The test asks whether the arrangement is genuinely one of contracting, or whether in substance it is employment. That classification decides who owes what. Employees get award wages, leave, superannuation and unfair dismissal protection, while a genuine contractor is paid what the contract says and manages their own tax, insurance and entitlements. This guide walks through how the test operates, where a long-term sole trader arrangement starts to look like employment, and what both the trader and the company can do about it.
Who is involved and why classification matters
Three sets of interests meet in every contracting arrangement. The sole trader wants independence, flexibility and a steady income. The company wants a reliable service without the overhead of payroll, leave and super administration. The regulators and courts, principally the Fair Work Ombudsman, the Australian Taxation Office and the Fair Work Commission, apply the rules that decide which legal box the relationship falls into.
The two parties' interests usually align, because genuine contracting suits both sides. The conflict only emerges when the relationship drifts. If a worker who has been treated like staff for years is suddenly told they were never an employee, the parties stop agreeing about what the relationship was, and that is when the classification test gets applied, often years after the work began.
The test itself has moved recently. In 2022 the High Court emphasised the terms of the written contract as the primary evidence of the relationship in cases including CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1. Parliament then legislated in response, inserting s 15AA into the Fair Work Act 2009 (Cth) with effect from 26 August 2024, so that classification is now decided by looking at the whole relationship, not just the contract.
The test that decides whether someone is an employee
Section 15AA of the Fair Work Act provides that whether an individual is an employee within the ordinary meaning of the term is determined by the real substance, practical reality and true nature of the relationship. That requires looking at the totality of the relationship, including both the terms of the contract and how the contract is performed in practice.
That last point is the crucial shift. A well-drafted services agreement is no longer enough on its own. If the contract says the trader is independent, but in practice they are rostered, directed, equipped and integrated like staff, the conduct is part of the picture and can pull the relationship into employment.
Which test applies depends on who is doing the engaging. A company with Pty Ltd or Ltd in its name is a constitutionally covered business, and from 26 August 2024 it must use the whole of relationship test described above, according to the Fair Work Ombudsman. Businesses that are not constitutionally covered corporations, which can include sole traders and partnerships in referred states, use the start of relationship test instead. For the common scenario of a sole trader working for one company, the company side is almost always a constitutional corporation, so the whole of relationship test applies.
Under that test, decision-makers weigh the standard indicators. The Fair Work Ombudsman sets out the factors that pull toward employment or contracting:
- Control: an employee works under the direction of the employer, including hours, location and method. A contractor has a high level of control over how the work is done.
- Financial responsibility and risk: an employee carries no financial risk. A contractor bears the risk of profit or loss on each job and is personally liable for poor work.
- Tools and equipment: employees generally use the employer's tools. Contractors supply their own.
- Delegation: employees must do the work themselves. Contractors can delegate or subcontract the services to someone else.
- Hours of work: employees work set or standard hours. Contractors decide what hours they work to complete the task.
- Expectation of continuing work: employees usually have an ongoing expectation of work, while contractors are typically engaged for a specific task.
None of these factors is decisive on its own. Having an ABN and issuing invoices does not automatically make someone a contractor, as the ATO makes clear, and the same type of work can be done by an employee and a contractor at the same business. The overall picture is what counts.
Where duration and exclusivity actually fit
No factor in the test is how long the engagement has lasted. Duration is not an independent criterion. But it works through the test in two indirect ways.
First, a long engagement tends to strengthen the expectation of continuing work. A contractor engaged for a specific project has a natural end point. A sole trader who has worked for the same company for three years, with no defined end date and a rolling pipeline of work, starts to look like a permanent fixture of the business.
Second, and more important, time gives employment-like features room to accumulate. It is easy to keep a short engagement genuinely independent. Over years, the trader may take a desk on site, use the company's email and software, attend the staff meeting, follow the internal booking system and stop quoting on work because the client just sends more. Each individual step is small. Together they can tip the whole of relationship test.
Exclusivity works the same way. Working for a single client is not itself a problem, and exclusivity is not one of the factors the Fair Work Ombudsman lists when applying the test. But an exclusive, indefinite, full-time arrangement with one company is exactly the shape of employment, so it raises the stakes for every other factor. The more the relationship looks like a job, the more important it becomes that the contract and the conduct genuinely reflect independence.
What happens when the arrangement is really employment
If the test comes out the other way, the consequences land mainly on the company, and they can be substantial.
The company can owe the worker employee entitlements for the period of the relationship: award or minimum wages, annual leave, personal leave, overtime and superannuation, potentially going back years. Under the superannuation rules administered by the ATO, a contractor paid mainly for their labour, meaning more than half the dollar value of the contract is for their labour, is treated as an employee for superannuation guarantee purposes even with an ABN, and the $450-a-month threshold for eligibility was removed from 1 July 2022.
There is also a specific prohibition on pretending. Section 357 of the Fair Work Act makes it unlawful to represent that an employment contract is a contract for services. Since 27 February 2024, an employer defending a sham contracting claim must prove that it reasonably believed the worker was genuinely a contractor, a stricter standard than the earlier recklessness test. The maximum penalties per contravention are $21,840 for an individual and up to $109,200 for a business with fewer than 15 employees, or $546,000 for a larger business, per the Fair Work Ombudsman. The Ombudsman actively litigates these cases and publishes the penalties.
For the sole trader, the downside of reclassification is usually more subtle. It tends to follow a dispute, the relationship is often over by then, and the trader loses the flexibility that made contracting attractive in the first place.
The tax dimension of working for one client
Working mainly for one company also has a tax consequence that has nothing to do with employment law. Under the personal services income (PSI) rules, income that is mainly a reward for an individual's personal efforts or skills is treated differently from ordinary business income. A sole trader who fails the personal services business (PSB) tests cannot claim the usual business deductions, such as home office and motor vehicle expenses, and the income is taxed as personal services income.
The way out is to self-assess as a personal services business. That requires passing the results test, or passing one of the other tests together with the 80% rule. The unrelated clients test, for example, requires PSI from two or more unrelated clients, obtained through offers to the public such as advertising or a website, and word-of-mouth referrals do not count, according to the ATO. A sole trader whose income comes from one long-term client will generally fail this test, which is why the arrangement is rarely tax-neutral.
GST sits alongside this. A sole trader must register for GST once their GST turnover reaches $75,000 or more, and must do so within 21 days of crossing the threshold, per the ATO. For a trader working full-time for one company, that threshold is often crossed quickly.
New rights for long-term contractors
The 2024 changes cut both ways. While the whole of relationship test makes reclassification easier to argue, contractors also gained a new avenue to challenge their own contracts.
From 26 August 2024, an independent contractor who provides services under a contract with a constitutional corporation can apply to the Fair Work Commission to have an unfair term of their services contract set aside, amended or varied, under Part 3A-5 of the Fair Work Act. The Commission considers factors such as the relative bargaining power of the parties, whether the contract displays a significant imbalance in rights and obligations, and whether a term is reasonably necessary to protect the legitimate interests of a party. The application is only available to contractors earning below the contractor high income threshold, which is $190,100 from 1 July 2026, and a separate pathway remains open under the Independent Contractors Act 2006 (Cth) for court review of harsh or unfair contracts.
For a sole trader locked into a long, exclusive engagement, this matters. A client's standard services agreement may contain terms that are simply unfair to a small operator, such as unilateral variation clauses, one-sided indemnities or termination at will with no notice. Before 2024, the only route was court review under the Independent Contractors Act. Now the Commission can rewrite the contract. That is a genuine protection for long-term contractors and a reason to have the engagement reviewed.
Where sole traders and companies usually get caught
The most common mistakes are the quiet ones. The contract says one thing and the working reality says another: the trader uses the client's email domain, wears the client's branded uniform, is rostered through the client's system and asks permission before taking leave. The ABN and the invoices are there, but everything else looks like a job. That is the gap the whole of relationship test is designed to expose.
Other traps are administrative. A sole trader supplying services to a Commonwealth agency under a contract is covered by the Privacy Act 1988 (Cth) (the Act) regardless of turnover, one of the exceptions to the small business exemption for businesses with annual turnover of $3 million or less, per the OAIC. And a client's own privacy and data security requirements can be imposed contractually even where the Act does not apply, so a trader who collects personal information should not assume the exemption protects them.
When to bring in a lawyer
The value of legal advice in these arrangements is timing. The best point to involve a lawyer is before the engagement starts, or when it shifts from a defined project to an open-ended arrangement, because that is when the contract can still be made to match the intended relationship. A practitioner will review the services agreement for the independence indicators, IP ownership, confidentiality, payment terms and termination, and will flag whether the draft reflects a genuine contract for services or a thinly disguised employment contract.
For the company, the same review protects against the bigger exposure. A lawyer can assess whether a long-term contractor relationship has drifted toward employment and advise on restructuring it before a dispute, an Ombudsman investigation or a reclassification claim lands. For the sole trader, advice is also relevant at the other end of the relationship: challenging an unfair term at the Commission, or responding to a client who unilaterally rewrites the arrangement.
Tax advice is part of the picture too. The PSI rules, GST registration and the superannuation treatment of labour contracts each turn on the specifics of how the trader operates, and an accountant familiar with contractors is the right person to confirm the position.
Watch the drift, not the calendar
There is no anniversary at which a sole trader's engagement with one company becomes unlawful. The date that matters is the one on which the working relationship stops being contracting in substance, because from that point the entitlements, superannuation and penalties can start to accrue, often unnoticed, for years.
For both sides the practical rule is the same: the contract should describe the relationship the parties actually intend, and the day-to-day conduct should match it. When a trader starts to look like staff, the question of how long they can keep working for that company has already been answered by the test, and the answer is usually not the one the parties assumed. A short review of the arrangement, and a conversation with a lawyer before the next contract renewal, is a small cost against the exposure that a reclassified relationship can create.