Independent contractor arrangements

It is important to have a written independent contractor agreement that outlines what duties are to be performed by the independent contractor, how much the company will pay for the engagement, the contact information of all parties and any other terms that are required for the job such as if the independent contractor will require third party assistance.

If it is discovered that you have treated your independent contractor as an employee, your company will face serious fines and back taxes. If this occurs, you should seek legal advice to resolve the issue to minimise the negative impact on your business.

Under Australian employment law, sham contracting is when a business misclassifies an individual as an independent contractor when they should be classified as an employee.

There are many advantages of hiring an independent contractor instead of an employee. A business has more freedom of flexibility if they hire an independent contractor over an employee. Contractor fees do not include insurance, holiday pay or sick leave, equipment, office space or benefits that are provided to employees. However, it is important to ensure you have not given your independent contractor the role of an employee to avoid landing in trouble.

There are some disadvantages of hiring an independent contractor. These include:

- The workers can come and go, which may be inconvenient and inconsistent;
- You have less control over independent contractors;
- You may be sued for damages if an independent contractor is injured on the job; and
- There is a risk that federal and stage agencies may audit your business to ensure the workers are classified correctly, such as employees being classed an independent contractor or an independent contractor being classed as an employee.

Undertaking contract work provides an individual with more independence and a greater level of job security over traditional employment. Independent contractors are able to work the hours that suit them and their lifestyle rather than strict hours set by management. You will get paid on an hourly basis, so if you have skills that are in demand you may be likely to earn a higher income.

There are many differences between an employee and an independent contractor. An employee works full-time, part-time or casually and does work as the employer directs. An independent contractor works the number of hours required to complete the task and has more control over the way they work. Other factors considered by the court to determine the differences are:

- The degree of control over the work and how and when it is completed;
- If there is an expectation of ongoing work or not;
- The financial risk involved;
- Whether or not superannuation contributions are required;
- Considering who provides any tools or equipment;
- Any income tax deductions available;
- The method of payment given;
- If there were any leave entitlements;
- The individual’s ability to work for other companies; and
- The individual’s right to delegate or subcontract.

Independent contractors:

- Have more control over their work, including electing to hire others to help with the job;
- Agree to the number of hours required to complete the job;
- Are engaged for a certain task or amount of time;
- Understand the risk of making a profit or a loss;
- Have their own insurance;
- Use their own tools or equipment;
- Pay their own tax;
- Pay their own GST;
- Have an ABN and submit their own invoices; and
- Do not receive any paid leave.