Subcontracting versus employing cleaners under Australian law

The cheapest cleaner on a Tuesday night is often the most expensive person you will ever put in a building. Not because they are slow. Because someone decided that an ABN, a monthly invoice and the words “independent contractor” would do the work of an employment contract, the Cleaning Services Award, PAYG withholding, superannuation and workers compensation. Australian regulators have been writing the opposite for years. The law looks at the work.

This is an explainer for contractors who actually run crews, not a substitute for advice from an employment lawyer or a registered tax agent. Rules differ by state on labour-hire licensing and workers compensation. Penalty amounts and dollar rates move. Read the current Fair Work, ATO and state pages, and the editorial standards note that this journal does not flatten Australia into one story.

Sham contracting is a Fair Work Act problem

The Fair Work Ombudsman is blunt. If you represent to a worker that they are an independent contractor when they are in fact an employee, that can be sham contracting, unless you can prove you reasonably believed they were a contractor. It is also illegal to knowingly say something false to persuade an employee to become a contractor to do the same (or mostly the same) work, or to dismiss or threaten to dismiss an employee so you can engage them as a contractor for that work.

Those rules exist because the device is familiar in contract cleaning: take a cleaner off the books, tell them to get an ABN, keep the roster, keep the uniform, keep the chemical cupboard, and call the weekly pay an invoice. The Ombudsman publishes maximum court penalties for each contravention and updates them. Look up the current figures rather than memorising last year’s. Civil penalties sit next to the underpayment itself — award rates, leave, super, and the interest and charges that follow.

A genuine contractor still exists in this industry. They quote a result, bring their own people and plant, decide the method, carry the defect risk, and can send someone else. They are not on your leading hand’s WhatsApp for a 6pm start. If you need a surge body on a night roster, the honest tools are an employee (including a casual engaged for a purpose the award allows) or a labour-hire provider that is actually licensed where the state requires it. Pretending otherwise is how a night roster becomes an evidence file.

The ATO has already written the cleaning example

The Australian Taxation Office publishes an industry example that should be pinned in every operations office. In it, Catherine works for a cleaning business that holds the building contract. She is required to clean at set times, follow instructions, wear the business’s uniform, cannot delegate except through the business, is paid an hourly rate on timesheets, and uses the business’s equipment. Those are employee characteristics. Karl, in the same publication, has contracted to clean a building for a year, can do the work any time after hours within a window, is not directly supervised, can accept or reject extra work, can pay someone else to perform the work, is paid a quoted amount for a result, and is not held out as part of the client’s or an agency’s staff. Those are contractor characteristics.

Notice what does not appear as a deciding factor: the existence of a written contract that says “contractor”, the possession of an ABN, or the fact that the engagement is short. The Ombudsman’s sham-contracting example makes the same point. A fixed-term employee is still an employee. “They only work nights” does not help. “They asked to be a contractor” does not help if the indicators go the other way.

For PAYG, the practical split is this. Employees are paid wages. You withhold, you report through Single Touch Payroll, you pay super on ordinary time earnings, and you keep the time-and-wages records the award and the Fair Work Regulations already require. Contractors you have correctly classified may be paid on invoice, may quote GST if they are registered, and invoice for a result. If you have guessed wrong, you can face PAYG withholding penalties and the super guarantee charge — the shortfall, interest and additional penalties, including the Part 7 penalty under the Superannuation Guarantee (Administration) Act, which the ATO describes as being up to 200 per cent of the charge. That is before Fair Work enters the building.

The award does not apply to a genuine contractor. It applies to almost everyone else.

Employees in contract cleaning are usually covered by the Cleaning Services Award 2020 (MA000022) unless a registered enterprise agreement applies. The award sets classifications (CSE 1, 2 and 3), minimum rates, the part-time allowance, casual loading, penalty rates, overtime, allowances, rostering rules and consultation. Casual engagement is limited to intermittent or irregular work, uncertain hours, or replacing someone who is rostered off or absent. Part-time hours have to be agreed in writing. None of that is optional because a client paid a lump sum.

A genuine independent contractor is not covered by the award. That sentence is where the wishful thinking starts. If the worker is an employee in substance, the award applied the whole time. Back-pay calculations in this industry are ugly because nights, weekends and broken shifts are the job — see the penalty table discussed in the rostering piece. A year of “invoices” at a flat hourly figure that sat under the casual Sunday rate is not a commercial saving. It is a debt.

Classification still matters if you employ. A person who trains others, runs the building and deals with the tenant is not a CSE 1 because that is the cheapest line on the pay guide. Leading-hand and Level 3 duties are described in the award for a reason. Under-classification is the quieter cousin of sham contracting and it shows up in the same audits.

Superannuation follows the worker more often than the invoice

From 1 July 2025 the superannuation guarantee is 12 per cent of an eligible employee’s ordinary time earnings, payable at least quarterly until payday super changes the timing. Ordinary time earnings are not a vibe. They are a defined subset of salary and wages; penalty rates on ordinary hours are commonly in, overtime is commonly out, and you should use the ATO’s current ordinary-time-earnings guidance rather than a payroll folklore.

Casual employees are still employees. They get the guarantee on their OTE. They do not lose super because they have a loading.

Contractors can also attract the guarantee. If the contract is wholly or principally for the person’s labour, they cannot delegate, and they are paid for their time, the ATO may treat them as an employee for SG purposes even if they are a contractor for other tests. “We don’t pay super because they invoice” is not a position. It is a future super guarantee charge. From 1 July 2026, payday super changes when SG must be paid for employees; plan the cashflow now if you still treat super as a quarterly surprise.

Do not offset award entitlements against a “higher” loaded invoice and assume you are safe. Offsets need a lawful structure. Get advice before you invent one.

Labour-hire licensing is a state question, and cleaning is in the net

Victoria and Queensland have been the states that cleaning contractors cannot wave away. South Australia also runs a labour-hire licensing scheme; check whether your model is caught there too. The Commonwealth does not issue a single national cleaning licence that replaces those Acts.

In Victoria, the Labour Hire Licensing Act 2018 requires a person who provides labour-hire services to hold a licence. The Labour Hire Authority has long treated the supply of workers to perform cleaning at commercial premises — shops, restaurants, factories, offices, schools, construction sites and similar — as labour hire. Hosts that take labour from an unlicensed provider also face penalties. The Authority has warned that the definition of providing labour-hire services has been amended and that supply-chain and on-supply arrangements are in scope. If you on-hire another company’s cleaners, or you sit in a chain of subcontractors who only supply people, read the current LHA material for the date your contract runs, not a 2018 blog post.

Queensland’s Labour Hire Licensing Act 2017 is built around the same idea with different examples. Labour Hire Licensing Queensland publishes a cleaning-industry page that is more useful than most lawyers’ first emails. A firm that supplies staff for an event, takes radio instructions from the client, and is not delivering a self-directed outcome, needs a licence. A hotel that takes your employee to backfill rooms, where you do not control the work, do not supply the materials and do not rectify defects, is labour hire — unless a narrow in-house employee exemption applies to a genuine temporary loan of someone who normally works in your own business. A shopping-centre contract in which you supply two cleaners for a fixed fee and centre management directs the tasks is described as licensed labour hire. A fixed-price cleaning outcome that you control, with your method, your supervision and your defect liability, is the example of a service contract that is not labour hire.

The distinction is the whole business. If your “subcontract” is a person on a roster being told which toilets to do, you are on the labour-hire side of both states’ lines, and you may also be on the employment side of Fair Work’s line. Those can both be true.

Licence applications, fit-and-proper tests, reporting and the ban on using an unlicensed provider are not a logo for the tender folder. They are conditions of being allowed to supply the labour. Confirm the current penalty scales with the Authority or the Queensland regulator before you tell a client you are “right to work”.

Client audit clauses will ask the question you hoped to avoid

Modern cleaning tenders, especially government, education, health and large retail, do not accept a shrug. They ask for employment records or contractor agreements, super evidence, workers-compensation insurance in the state of the work, public-liability certificates at the limit they specify, and, where relevant, a labour-hire licence number. Many also ask for a modern-slavery statement once you cross the Commonwealth reporting threshold, and for evidence that your subcontractors were not paid in cash out of the petty-cash tin.

Write the contract you can audit. If you employ, you should be able to produce the Fair Work Information Statement acknowledgement, the part-time hours agreement, time-and-wages records, PAYG and STP, super files, and the induction pack. If you use a genuine contractor company, you should be able to produce their ABN, GST status, their own workers-compensation policy if they have employees, their public liability, any labour-hire licence, and the scope that shows a result rather than a body. If you use labour hire, you should be able to produce the provider’s licence and the rate that still lets them pay the award.

Audit clauses often let the client deduct, suspend or terminate if you cannot produce the file. Some pass through on-hire liability so that a sham arrangement in your supply chain becomes your default. That is why a cheap subcontractor who will “look after their own super” is not a commercial win on a government panel. It is an unpriced indemnity.

Insurance follows the same honesty. Workers compensation is state- and territory-based. If you employ, you need the policy the scheme requires for that work — including labour hire and cleaning, which some schemes rate as higher-risk. The companion piece on workers compensation is the place for scheme detail. If you use contractors who are later found to be employees, you can find yourself with an uninsured worker and a client who still expects a certificate of currency. Public liability does not replace that. Neither does a contractor’s invoice that says “cover your own accidents”.

When employing is the cheaper legal structure

Employment is not a moral victory. It is the structure that matches a business that sells hours of cleaning under its own brand. You need people on a roster, in a uniform, using your method, who cannot send a cousin instead. That is Catherine, not Karl. Employ them, classify them, roster them lawfully, induct them, and inspect the work. The quality inspection then sits on your employment file rather than on a fiction.

Use a genuine contractor when you are buying a result you do not want to supervise: a periodic carpet clean from a plant-hire specialist, a high-level external clean from a height-ticketed firm, a holiday strip-and-seal with their own crew and chemicals, a window contract. Write a scope, a defect liability, and a right to see their licences and insurance. Do not write a start time and a shirt.

Use licensed labour hire when you are genuinely hiring labour to a host — including when you are the host — and the state Act says the provider must be licensed. Do not invent an ABN layer between you and a cleaner to dodge the licence. The Victorian supply-chain amendments exist because that dodge became a product.

The test you can run in a toolbox meeting is crude and useful. Can this person send someone else tomorrow, with their own gear, and still get paid if the floor passes? If the answer is no, they are almost certainly your employee, and the rest of the paperwork should catch up. If the answer is yes, you have a contractor — and you should stop telling them which cupboard to unlock at 6.30pm.

Get the structure right before you win the next night-fill supermarket or the next school cluster. After the start date, the only cheap option left is the one that will be expensive. For the roster, the induction and the weekend cover that sit on top of a lawful engagement, stay in this operations hub and write the file as if a Fair Work inspector and a client auditor will read it on the same day. They sometimes do.