In certain circumstances, businesses find it practical to contract work out to independent contractors rather than hire employees.
This may the case for one-off projects that achieve a specific result or projects of a limited nature or duration that require persons with specialist skills and expertise.
The Sole Trader Contractors Agreement is a Contractors Agreement between a principal (usually a business or organisation) and an independent individual sole trader contractor. If the contractor you are dealing with is an incorporated company and not an individual, see our Incorporated Contractors Agreement.
This agreement sets out the rights and obligations of the principal and the independent contractor.
It allows you to negotiate and define the terms and conditions of the relationship up front. By taking the time to set out the exact nature of the arrangement the possibility of any future misunderstandings or disputes are minimised.
This document includes clauses to protect the principal’s business interests while allowing the principal to maintain a healthy ongoing relationship with the contractor.
Contractor or an Employee?
The ATO actively scrutinises whether contractors are actually employees. Although there are many circumstances where it is lawful for a business to engage an independent contractor, the law seeks to ensure that employees are protected from being treated as independent contractors when they should be in fact be an employee.
Factors that point towards a person being an independent contractor are where an independent contractor:-
- performs the work as an entrepreneur who owns and operates his or her own business;
- works for the Principal as a representative of the contractors business - not as a representative of the Principal’s business;
- advertises his or her services to the public;
- holds his or her own insurances;
- has the ability to determine the manner in which the work is completed;
- has the ability to sub-contract the work out to others;
- has his or her own tools and equipment to perform the work;
- has the ability to accept or refuse work as it becomes available;
- is generally paid on a results basis rather than on a time basis;
- decides what hours to work to get the job done;
- submits invoices for work completed or is paid at the end of the contract or project.
In contrast, employees perform their work under the direction and control of their employer, and generally on an ongoing basis with standard set work hours (with the exception of casuals).
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