The term ‘independent contractors’ refers to any individual or business that you engage to provide goods or services. On this page we may also refer to them as suppliers or simply contractors.
Many Not For Profits will use contractors for short term or occasional skilled work, such as bookkeeping and accounting, graphic design or website updates, and even things like business or strategic plans.
Independent contractors are covered under the Independent Contractors Act 2006 (Cwth) and are also entitled to some general protections under the Fair Work Act 2009 (Cwth) including protection from unlawful discrimination.
It is illegal to disguise an employment relationship as an independent contracting arrangement. Under the Fair Work Act 2009 (Cwth), an organisation cannot:
- disguise an employment relationship or proposed employment relationship as an independent contracting arrangement
- dismiss or threaten to dismiss an employee to re-engage him or her as an independent contractor
- knowingly make a false statement to persuade or influence an employee to become an independent contractor.
At a glance
Operation and structure
An independent contractor usually has their own Australian Business Number (ABN). They may also be a registered business and would hold their own insurance policies.
They usually decide how they will do the work and have the experience and skills to do so without additional training.
They may also be doing work for other organisations; and may accept or refuse additional work, outside the terms of your current arrangement with them. See Agreements and contracts below.
Tools and equipment
An independent contractor usually provides their own tools and the materials and equipment, unless agreed otherwise. For example, a bookkeeper may come into your office to do the work, while a website designer may work from home most of the time.
You would normally pay an independent contractor for results, such as when a project has been delivered or they have completed an agreed number of hours work.
They may seek reimbursement for materials used or other expenses, however this should be agreed to before work starts.
As good practice, you should ensure that you receive an invoice from the supplier before each payment is made.
A contractor is responsible for their own superannuation contributions and income tax payments. If they are registered for GST they must include the GST amount in their invoices to you.
If they do not have an ABN you may be required to withhold the PAYG amount from their payments.
- see the PAYG withholding page on the ATO website for more information.
The basis of your arrangement with an independent contractor is the agreement or contract that you have with them.
Many established businesses will have their own process for providing a quote for their services. Your acceptance of the quote often becomes your agreement with them.
An agreement can be verbal and may be considered a contract by the courts. But often it is a good idea to have something in writing so that there is no misunderstanding. This can be as simple as sending an email to record the conversation or you can prepare a more formal document.
What goes in a contract?
At the very least you should include a description of the goods or services, the cost and payment terms. A basic contract would include:
- The parties - Sets out the details of both parties to the contract (you and the supplier). This usually includes key business information, such as organisation name, ABN and business address, and the names and signatures of authorised representatives.
- Description of services - Provides an overview of the work to be done or the goods to be delivered. This should be detailed enough to make sure there is no confusion for either party.
As much as possible specify required dates or times, quantities to be delivered and your quality expectations. A more detailed description can help with preventing disputes or resolving them if there are any issues later. For example:
Poor description: Design of A4 flyer for volunteer induction sessions.
Better description: Design of double-sided A4 flyer for volunteer induction sessions; will be printed in 4 colours on glossy paper; must include our logo and meet style guide requirements. Final design to be delivered in EPS format by 1pm Friday 7 February.
- Payment - Sets out the amounts and timing of payments, and who pays for any extra expenses. This section can also include where and how invoices should be sent.
Hint: For larger projects, payments can be tied to completion of key stages. Sometimes, it can be a good idea to keep a final payment for ‘upon final acceptance’ as this can help encourage suppliers to fix any defects or quality issues.
Depending on the work and the level of risk, your contract may also include:
- Dispute resolution - Sets out how the parties will handle a dispute if it arises. A good procedure also includes timeframes.
- Intellectual property - Clarifies rights to intellectual property such as copyright.
Note: Under the law, intellectual property for work created by the supplier belongs to them unless the contract says otherwise.
- Confidential information - Protects sensitive information such as your client data or funding sources. Your supplier may also need to protect its information, such as trade secrets.
- Indemnity - Sets out when and how your organisation can be compensated for any loss as a result of the contractors work.
- Insurance - Clearly identifies the insurance obligations of each party. This often supports the need for indemnity by ensuring compensation can occur.
Hint: You may require that the supplier maintains certain insurances both during the contract period and for a defined period after.
- Sub-contracting - Clarifies if the supplier is allowed to sub-contract the work, or parts of the work, to another business. Any processes for involving a sub-contractor, such as gaining your approval first, should also be included.
- Exclusivity arrangement - Restricts the contractor from working for other clients during the contract period.
- Restraint of trade - Restricts the contractor from trading directly with your clients for a specified period of time.
- Warranties - Sets a time period, after delivery or completion, where the supplier has responsibility for fixing faulty or incomplete work. This also should include a process for notifying the supplier of any problems.
- Variations - Sets out how or when the parties can vary the contract by mutual agreement.
- Contract termination - Specifies when and how each party can end the contract, and what the consequences would be.
If an issue arises with an independent contractor, you should first refer to the agreement that you have with them – make sure you are in the right! Some contracts will include a formal dispute resolution process.
Discuss the issue with the supplier and try to find some middle ground. You might also put your concerns in writing and request a response.
If talking doesn’t work or you are still not satisfied, consider getting a third party involved for mediation – this is often quicker, cheaper and less stressful than going to court. The Dispute Settlement Centre Victoria, a free dispute resolution service funded by the Victorian Government, may be able to help.