A small business is an independently owned business that sits below a set size limit — usually measured by how many people it employs, how much money it turns over, or both. The tricky part is that there is no single definition: the answer changes depending on whether you are talking about statistics, tax, or workplace law. This guide explains each definition in plain language, so you can work out which one applies to you.
Quick answer: In everyday use, a small business is a business with fewer than 20 employees. For tax concessions, the Australian Taxation Office treats a business as a small business entity if its aggregated turnover is less than $10 million. Under workplace law, a small business employer is one with fewer than 15 employees.
Why There Is No Single Definition
Different organisations measure size for different reasons. A statistics agency counts heads so it can track jobs. A tax office counts turnover so it can decide who qualifies for concessions. A workplace regulator counts employees so it can set dismissal and redundancy rules. That is why the same business can be “small” under one rule and not under another — and why you should always check which definition a form, grant, or rule is using before you tick a box.
The Statistics Definition: Fewer Than 20 Employees
The Australian Bureau of Statistics (ABS) defines a small business as one employing fewer than 20 people. This is the definition behind the often-quoted fact that small businesses make up around 97 to 98 percent of all businesses — they are, by far, the most common kind of business in the country.
Within that group, the ABS breaks businesses down further:
- Non-employing businesses: run by the owner alone, with no employees. This includes many sole traders and partnerships.
- Micro businesses: employing 1 to 4 people.
- Other small businesses: employing 5 to 19 people.
So a one-person freelance operation and a 19-person manufacturing workshop are both small businesses under this definition, even though they feel very different day to day.
The Tax Definition: Less Than $10 Million Turnover
For tax purposes, the ATO calls a business a small business entity if it is carrying on a business and its aggregated turnover is less than $10 million. Aggregated turnover means your own business turnover plus the turnover of any businesses you are connected with or have influence over — you cannot split one business in two to slip under the limit.
Meeting this test can open the door to a range of tax concessions, such as simplified depreciation and trading stock rules. Note that some concessions have their own lower limits: for example, the small business income tax offset applies to businesses with aggregated turnover of less than $5 million. Always check the limit for the specific concession you are claiming.
The Workplace Law Definition: Fewer Than 15 Employees
Under the Fair Work Act, a small business employer is one with fewer than 15 employees at a particular time. The count includes full-time and part-time staff, employees of associated entities, and casuals employed on a regular and systematic basis — but not independent contractors.
This definition matters because small business employers follow different rules in some areas, including a 12-month minimum employment period before an employee can make an unfair dismissal claim (compared with 6 months for larger employers), and a general exemption from redundancy pay under the National Employment Standards. If your headcount crosses 15, those rules change, so it pays to recount before making staffing decisions.
Common Business Structures
Size is one question; structure is another. Most small businesses take one of these four forms:
- Sole trader: one person runs the business and is personally responsible for its debts. Simple to set up and the most common structure for very small operations.
- Partnership: two or more people run the business together and share income, losses, and responsibility.
- Company: a separate legal entity registered with ASIC. It costs more to run but limits the owners’ personal liability.
- Trust: a trustee holds and manages assets for beneficiaries. Often used with professional advice because the rules are more complex.
Whatever the structure, a business generally needs an Australian Business Number (ABN), and it must register for GST once its GST turnover reaches $75,000 a year.
Examples of Small Businesses
Small businesses cover almost every industry: a suburban cafe, a plumbing firm with six staff, a freelance graphic designer, a family-run farm, an online store run from a spare room, and a local accounting practice. What they share is not what they sell, but their scale — a small team, a local or niche market, and an owner who is usually involved in the day-to-day work.
Small Business vs Medium Business
Once a business grows past the small thresholds, it is usually described as medium-sized — commonly, a business with 20 to 199 employees. Medium businesses face different reporting, tax, and workplace obligations, and they are far fewer in number. The jump from small to medium is a milestone, but it is also the point where many owners first need formal HR, compliance, and management systems.
How to Tell If Your Business Counts
Ask these three questions:
- How many people do you employ? Fewer than 20 puts you in the ABS small business group; fewer than 15 makes you a small business employer under Fair Work.
- What is your aggregated turnover? Less than $10 million makes you a small business entity for most tax concessions.
- Which rule are you dealing with? Match your answer to the rule in front of you — a grant, a tax form, and an employment decision may each use a different test.
If you are just starting out, our step-by-step guide to starting a side hustle covers the practical first steps, from choosing an idea to registering correctly.
Frequently Asked Questions
Is a sole trader a small business?
Yes, in most cases. A sole trader with no employees is a non-employing small business, and a sole trader with a small team still fits the ABS definition as long as total staff stay below 20.
Can a business with no employees be a small business?
Yes. Non-employing businesses are the largest group of small businesses. Size is about staying under the relevant limit, not about having staff.
Does turnover or headcount matter more?
Neither, on its own. Tax rules look at turnover, statistics and workplace rules look at headcount, and some programs look at both. Check the rule you are applying for.
What happens when a small business grows too big?
It simply moves into the next size category. That can mean losing access to small business concessions and gaining new obligations, so plan for the change rather than being surprised by it.
This article is general information only and is not tax, legal, or financial advice. If you are unsure which definition applies to your situation, check with the ATO, the Fair Work Ombudsman, or a qualified adviser.
