Employee vs Contractor for Lawyers: What the ATO Actually Looks At
- 6 days ago
- 3 min read
For Brisbane law firms, engaging lawyers as contractors can seem like a practical solution. More flexibility. Lower fixed costs. Scalable capacity.
But when it comes to the ATO, what matters isn’t what you call someone. It’s what the working relationship looks like.
With increased scrutiny around contractor arrangements across professional services, Brisbane legal practices need to ensure their structure would withstand review, particularly where Queensland payroll tax may also apply.
Why Misclassification Is a Risk for Brisbane Law Firms
Misclassifying a lawyer as a contractor can trigger:
Superannuation back payments
PAYG withholding liabilities
Queensland payroll tax exposure
Interest and penalties
Potential Fair Work claims
Even where both parties agree to a contractor arrangement, the ATO applies a substance over label approach.
For Brisbane firms, this risk is heightened where contractor models are used for senior associates, consultants or percentage based arrangements.
The Key Factors the ATO Considers
There is no single test. The ATO assesses the totality of the relationship.
1. Control
Who controls how the legal work is performed?
If the firm dictates:
Working hours (e.g. 8:30-5:30 in the Brisbane CBD office)
Where work must be performed
How matters are managed
Internal policies and billing procedures
This leans towards employment.
A genuine contractor typically has greater autonomy in how services are delivered.
2. Ability to Delegate
Can the lawyer subcontract or delegate the work?
A true contractor generally has the right to:
Delegate to another suitably qualified lawyer
Bear the cost of that delegation
If the individual must personally perform all work, this points more toward employment.
In legal practice, professional responsibility obligations can complicate this. This is why many Brisbane contractor models unintentionally resemble employment.
3. Commercial Risk
Who bears the financial risk?
Contractors typically:
Invoice the firm
Carry their own professional indemnity insurance
Rectify defects at their own cost
Manage profitability
Employees are paid regardless of matter margins and do not assume business risk.
4. Tools, Systems and Integration
Does the lawyer operate independently, or are they integrated into the firm?
Indicators of integration include:
Firm email address
Listing on the firm website as staff
Use of firm letterhead
Access to support staff and systems
Representing the firm as “we”
The more integrated the lawyer is into the Brisbane practice, the more likely the relationship resembles employment.
Superannuation: A Major Risk Area
Even if a lawyer is considered a contractor at common law, they may still be deemed an employee for superannuation purposes under the expanded definition in the Superannuation Guarantee legislation.
Superannuation may be payable if the contractor:
Is paid mainly for their labour
Is required to perform the work personally
Is not paid to achieve a specific result
This is one of the most common exposure points we see in Brisbane professional practices.
Queensland Payroll Tax Considerations
For Brisbane law firms, payroll tax adds another layer of complexity.
Queensland payroll tax provisions can apply to contractor payments where the arrangement is deemed “relevant contract” provisions under state legislation.
Even if a lawyer is a legitimate contractor for ATO purposes, payroll tax may still apply.
This is often overlooked and can create unexpected liabilities for growing firms.
Common Risk Areas We See in Brisbane Legal Practices
Senior lawyers converted to “contractors” but operating exactly as before
Percentage-of-billings arrangements with full integration into the firm
Outdated contractor agreements
No superannuation review under the expanded definition
No payroll tax assessment completed
These arrangements can work but only when properly structured.
What Brisbane Law Firms Should Do Now
If your firm engages lawyers as contractors:
Review your written agreements
Compare contract terms to actual working conditions
Assess superannuation exposure separately
Review Queensland payroll tax implications
Document your position and reasoning
Addressing this proactively is significantly less costly than responding to an ATO or OSR review.
For Brisbane law firms, contractor arrangements can be commercially effective but only when structured carefully and reviewed regularly.
If you’re unsure whether your current lawyer contractor arrangements would withstand scrutiny, now is the time to assess them.
Book a Discovery Call with Rise and we’ll assess your current arrangements, identify exposure areas and outline practical next steps tailored to your firm.