What are your legal obligations to Contractors?
When engaging contractors in your business you have legal obligations that you must meet.
1. Correct Classification
It is your responsibility as a business owner to know the difference between an independent contractor and an employee. You have a legal obligation to correctly classify your contractors to avoid sham contracting.
Ensure you are aware of the genuine contractor criteria and that your contractors meet these criteria to avoid them later being deemed as employees
Document why they're classified as contractors rather than employees
Have properly drafted Independent Contractor Agreements in place, signed by both parties
Avoid micromanaging/controlling how your contractors complete their work
Be sure your contractors are free and able to work for other clients
Require them to provide their own tools and equipment
Be sure your contractors are always free to accept or reject work that you offer to them
2. Payment Obligations
Your payment responsibilities include:
Paying agreed rates within specified timeframes
Meeting superannuation obligations if contractors are primarily paid for labour
Maintaining accurate payment records
Following proper invoicing procedures
Complying with any industry-specific payment regulations
3. Insurance Requirements
Independent contractors must be legitimately operating their own business. As part of this, they must hold their own insurance. The key insurance policies include:
Public liability insurance
Professional indemnity insurance (where relevant)
Workers compensation insurance for their employees (including for directors if the contractor is a company)
You should ensure you are entitled to request a copy of the relevant certificate of currency of insurance when required.
4. Work Health and Safety (WHS)
Despite contractors being independent, you still have WHS obligations:
Provide a safe work environment
Conduct appropriate safety inductions (where applicable)
Ensure contractors are aware of workplace hazards
Verify contractors have necessary licenses and certifications
Monitor compliance with safety procedures
Maintain incident reporting systems
5. Fair Treatment
Even though contractors are independent and are separate to employees, you still need to:
Be clear with your expectations and deliverables
Maintain proper and professional communication
Not engage in conduct that is discriminatory
Comply with your obligations set out in your Independent Contractor Agreements (including confidentiality and intellectual property obligations)
Remember: Contractor relationships require careful and intentional management to ensure success, and this includes careful compliance of legal obligations to ensure your contractor is not deemed an employee. When in doubt, seek legal advice for your business.
If you need help establishing solid legal foundations in your business you can download our free Essential Legal Checklist for service-based business owners, and book a Complimentary Introduction Call here.
You may also like to read this blog (Legally, Is Your Team Member A Contractor Or Employee?).
