Independent Contractors: know your rights

What is an independent contractor?

An independent contractor is an individual or business that provides services to another individual or company but is not considered an employee. Independent contractors are typically self-employed, and they are responsible for managing their own work schedules, finances, and taxes. This type of work arrangement has become increasingly popular in recent years, as many people seek greater flexibility and control over their work.

Difference between employees and independent contractors

Several factors determine whether a person is classified as an employee or an independent contractor. These factors include:

• The level of autonomy in performing the work
• Financial responsibility and exposure to risk
• Ownership and provision of tools and equipment
• Capability to subcontract or delegate work
• Work schedule
• Anticipated continuity of work.

For more information regarding the difference between contractor ad employee rights, see the Fair Work Ombudsman website.

Getting paid

As independent contractors are not considered employees, they are not entitled to a minimum wage or pay rate. Instead, payment is typically negotiated as part of their contract for services rendered.

Payment is usually made upon receipt of an invoice, which may be on a regular basis or at the completion of the project or contract.

In case an independent contractor encounters payment issues with an invoice, they have the option to seek legal advice or take their own legal action, as the Fair Work Ombudsman (FWO) does not have the authority to enforce payment of unpaid invoices.

If a dispute arises, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) provides support for independent contractors to resolve issues such as recovering unpaid invoices.

Security of payment

The term “security of payment” pertains to the entitlement of building contractors to receive the payments that are owed to them as per their contract. Every state and territory has its own set of security of payment laws that offer a legal framework for resolving payment-related conflicts.

The Fair Work Ombudsman noted that the following agencies can provide information on the applicable laws, contact information of adjudicators, and other relevant details pertaining to payment delays and disputes in each state or territory:

• Australian Capital Territory (ACT): Environment, Planning and Sustainable Development Directorate
• New South Wales (NSW): Fair Trading
• Northern Territory (NT) : Construction Contracts Registrar
• Queensland (QLD): Queensland Building and Construction Commission
• South Australia (SA): Office of the Small Business Commissioner
• Tasmania (TAS): Department of Justice
• Victoria (VIC): Victorian Building Authority
• Western Australia (WA): Building and Energy

Super and Tax

As independent contractors are not an employee of the company and are just providing services, they need to pay their own tax on the money they earn. Contractors should be aware of the relevant tax laws to ensure compliance and any GST or other payments that may be required.

In addition to tax payment, contractors may need to make superannuation contributions. There are exceptions to this, for example if a contractor is hired wholly or partially for labor services. In this circumstances, the person that hired them is responsible for their super.

For more information regarding tax and super, visit the Australian Taxation Office website.

Independent contractor benefits

Independent contractors are not entitled to the same benefits and protections as employees. This is because independent contractors are considered to be self-employed and are responsible for managing their own work arrangements, finances, and taxes. As a result, independent contractors do not receive the following entitlements:

1. Employment benefits: Independent contractors are not entitled to receive benefits such as health insurance, retirement plans, or paid time off. They must manage their own benefits and may need to purchase insurance or set up their own retirement plans.
2. Legal protections: Independent contractors do not have the same legal protections as employees, such as protection from discrimination, protection under labor laws, or the right to unionize.
3. Unemployment benefits: Independent contractors are not eligible for unemployment benefits if they lose their contract or are unable to find new work.
4. Workers’ compensation: Independent contractors are not covered under workers’ compensation laws and are responsible for their own insurance to cover work-related injuries or accidents.

However, independent contractors do have the right to negotiate their own rates, choose their own clients and projects, and work on a flexible schedule. They also have the potential to earn more money than employees, depending on the nature of their work and the rates they are able to negotiate.

Advantages and disadvantages

Advantages

1. Flexibility: Independent contractors have the freedom to choose their own projects, clients, and schedules, giving them a greater sense of control over their work-life balance.
2. Potential for higher income: Independent contractors can negotiate their own rates and can often earn more than employees in the same field.
3. Entrepreneurial opportunities: Independent contracting can provide an opportunity to build a business and pursue an entrepreneurial path.
4. Diverse work experiences: Independent contractors work for a variety of clients, which can provide exposure to different industries and experiences.

Disadvantages:

1. Lack of benefits: Independent contractors are not entitled to benefits such as health insurance, retirement plans, or paid time off.
2. Inconsistent work: Independent contractors may experience fluctuations in work volume and income, as they are not guaranteed a steady stream of work.
3. Responsibility for finances and taxes: Independent contractors are responsible for managing their own finances and taxes, which can be time-consuming and complex.
4. Limited legal protections: Independent contractors do not have the same legal protections as employees, which may leave them vulnerable to exploitation or mistreatment by clients.
5. Lack of job security: Independent contractors are not guaranteed ongoing work or a steady income, and may need to continually seek out new clients and projects.

Avoiding Sham Contracting

On certain occasions, a business or an individual may inform or depict a worker as an independent contractor, while in reality, the worker is an employee of the business. If the business was aware or ought to have been aware that the worker was an employee, it could be considered a sham contracting arrangement.

Sham contracting is illegal under the Fair Work Act 2009. It is illegal to:

1. It is considered a sham contracting arrangement if an employer knowingly or recklessly misrepresents an employee as an independent contractor. ‘Reckless’ representation can be deemed if the employer reasonably should have known that the worker was an employee.
2. Intentionally stating false information to persuade an employee to work for the employer as an independent contractor is also a form of sham contracting.
3. Dismissing or threatening to dismiss an employee with the intention of engaging them as an independent contractor to perform the same, or substantially similar work, is also regarded as a sham contracting arrangement.

Employers may sometimes establish sham contracting arrangements during the contracting process in an attempt to evade their responsibility to provide legal entitlements to employees.

Penalties can be enforced by the courts against businesses or individuals for engaging in sham contracting. The maximum penalty for a contravention is $16,500 for individuals and $82,500 for corporations.

If you think there is a sham contracting arrangement, visit the Fair Work Ombudsman for how to get further information and assistance.

What laws govern independent contractors?

The Independent Contractors Act 2006 establishes a nationwide scheme for independent contractors to seek redress for unfair contracts. Contractors have the option to request a court to review, alter, or invalidate a contract if it is deemed unreasonable or unjust.

For further details, please refer to business.gov.au – contractor rights and protections.

Legal Advice

Understanding your rights as an independent contractor is vital to protect yourself from exploitation, negotiate better terms, and prevent underpayment. It also helps you identify cases where you may be misclassified as an independent contractor, resulting in missed employee benefits and protections. Knowing your rights ensures that you receive fair compensation and working conditions that align with your expectations.

If you need any assistance on contractor agreements, you can always contact Legal Kitz to assist you. To arrange a FREE 30-minute consultation with one of our highly experienced solicitors, contact us at [email protected] or 1300 988 954. Additionally, you can also check out our sister company – Business Kitz’s Subscriptions, to access our full range of legal, commercial and employment document templates to begin your business with a solid foundation that ensures compliance.