The high-income threshold for independent contractors has increased to $183,100 per annum for the year commencing 1 July 2025.
It is important for businesses to consider whether opting out of the new definition of employee contained in the Fair Work Act 2009 (Cth) (Fair Work Act) is available to them and continue to review their current arrangements with contractors for the purposes of ensuring they are meeting their superannuation obligations.
Opting Out of the New Definition of Employee in the Fair Work Act
On 26 August 2024, a new section 15AA ‘employee definition’ test was introduced into the Fair Work Act. This new section was discussed in our alert published in February 2024 and further alert published in June 2025.
For the purposes of the Fair Work Act, this new section states that an assessment of whether a worker is an employee or independent contractor requires the parties to consider the “real substance, practical reality and true nature” of their relationship. In doing so, they are required to engaged in a ‘multifactorial assessment’, which considers not only the written terms of the contract, but how the contract is performed in practice.
However, on 27 February 2024 section 15AB was also inserted into the Fair Work Act, which allows parties to reach an agreement for this new definition not to apply to their relationship, by way of an opt out arrangement (Opt Out Notice).
If an independent contractor’s earnings for the work performed under their relationship with the entity which engages them exceeds the contractor high income threshold, the contractor can opt out of the new definition of employee by providing the entity which engages them with an Opt Out Notice (which must be in the required form).
The contractor high income threshold is set by the Fair Work Amendment (Contractor High Income Threshold) Regulations 2024 and has now been increased to $183,100 from 1 July 2025.
If an Opt Out Notice is given to an engaging entity, the relationship will be assessed based on the common law approach outlined by the High Court of Australia, which focuses on the written contractual terms, if the relationship is wholly committed to in writing. The effect of an Opt Out Notice was discussed in greater detail in our previous alert.
Superannuation Obligations for Contractors
In addition to considering whether a contractor is correctly classified for the purposes of the Fair Work Act, businesses are encouraged to review their current contracting relationships with these workers to consider whether they attract superannuation liability under the Superannuation Guarantee (Administration) Act 1992 (Cth) (Act). In particular, section 12(3) of the Act, which extends the requirement to pay superannuation to contractors who work under a contract that is “wholly or principally” for their labour.
It is important that businesses continue to review these arrangements due to the penalties under the Act which apply when superannuation entitlements have not been correctly paid.
How we can help
It remains important for all businesses to ensure their employment or independent contractor agreements are well-drafted, consider whether opting out of the new definition is available to them and ensure they are meeting their superannuation obligations.
Russell Kennedy can:
- Assist businesses in determining if Opting Out is appropriate and provide businesses with a template opt out notice.
- Advise businesses on the correct classification of workers and whether superannuation entitlements are payable under the Superannuation Guarantee (Administration) Act 1992 (Cth)
- Review or provide updated contractor agreements.Provide a checklist to assist in engaging new contractors, which considers the Fair Work Act 2009 (Cth), the Superannuation Guarantee (Administration) Act 1992 (Cth) and relevant state based workers compensation legislation.
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