A Legal Checklist For Engaging Independent Contractors | Independent Contractors and Australian Employment Law
When a business is ready to grow, outsourcing can be a fantastic way to grow with a real focus on strengths and skills. There is a lot to know though, about what you need to be aware of when looking to engage independent contractors in your business (and no, it’s not one-size- fits-all approach). In this article, we are going to provide you with a summary of the key points to consider when it comes to the law and engaging independent contractors in your business.
If you’re unsure about whether you need an employee or independent contractor, check out our recent podcast episode on the difference between the two.
In Australia, the Fair Work Act 2009 (Cth) as well as case law (law created by the courts) contain rules around what constitutes an independent contractor – what is an independent contractor, and how this is different to an employee. This is important because independent contractors don’t receive employment benefits (leave entitlements, pay minimums etc) so they need to be treated fairly as independent contractors. This has become topical for lawyers because in the past some businesses have tried (and failed) to disguise their employees as independent contractors because it was financially beneficial to the business – but not to the employee. The law is designed to protect employees and independent contractors, and to ensure that businesses know what their legal obligations are.
To help make this process simple below is an outline of the factors that usually indicate that a worker is an independent contractor and not an employee. As we have said above, this is not a one-size- fits-all approach, because the law will look at the relationship as a whole when determining whether an individual is an employee or an independent contractor. So keep this in mind when you are considering how to best grow your team, and look at the nature of the roles holistically.
Control
An independent contractor should have control over the how, when, and where they will be completing the work. A simple way to think about it is that the independent contractor is carrying out their own business on their terms. This is different to an employee because the hours of work and specific times, locations and structures of the work are set by you as the business. There are always exceptions to the rule, but control is an important factor to consider.
Delegation
An independent contractor is often able to delegate the work to someone else or another business. They generally don’t need to seek permission from you as the business, to do so. It’s their business and they are allowed to get the work done in the best way they see fit.
Tools /Equipment
An independent contractor will have their own tools and equipment and they won’t need to rely on the business to supply these.
Exclusivity
An independent contractor will have the right to provide services to multiple clients, which may include your competitors. Independent contractors should be providing services to a range of clients (in other words, they should not be providing services only to one business because that is consistent with an employment relationship, not a contractor arrangement).
Payment
An independent contractor will usually be paid for a result or outcome (task specific), and this can often be done via a fixed sum contract. An employee on the other hand, will usually be paid for hours or time worked.
Own business
Independent contractors run their own businesses and take on the commercial risks associated with that business. They have multiple clients/provide services for multiple businesses; they hold an Australian Business Number (ABN); maintain appropriate insurance; issue tax-compliant invoices for their services; generally not required to wear a uniform; have their own advertising processes in place, and so on.
Agreement
Like most things in business, you as the business owner need to be sure you have an independent contractor agreement in place to reflect the arrangement. You want to be sure that both parties are on the same page with the nature of the relationship, and the work to be done.
We have developed a handy little checklist for you to download and keep on hand, so you can cast your eye over the key things to consider when you are growing your team. You can download it here.
You may like to read our blog, Engaging an Independent Contractor | What the High Court has to say. You can read more of our tips for small businesses here and in our resource Australian Law 101 - Guide for Small Business.
As always, things may arise that you haven’t considered and you might need some advice along the way. If this happens, feel free to reach out to us so we can help you make the decisions that are right for your business, and that won’t land you in hot water later!