Employee or contractor?


The difference between employment and contracting arrangements is important when working out which Commonwealth, state and territory laws apply to you.

  • Employment relationships are regulated under employment laws which provide minimum terms and conditions of employment. 
  • Contractor arrangements are usually treated as ordinary commercial contracts subject to commercial laws that apply to business dealings.

It’s important to check with your industry association, union or a lawyer to make sure your contracts account for relevant laws.

Contractor laws


Generally, the Commonwealth Independent Contractors Act 2006 overrides state and territory legislation that would otherwise apply to you as a contractor. For example, the Act does not override:

  • owner-driver laws in Victoria and Western Australia
  • some owner-driver laws in New South Wales
  • national outworker laws

Under the Act, a contractor can apply to the Federal Court or the Federal Magistrates Court for a remedy in relation to an 'unfair contract' — a contract that is 'harsh' or 'unfair'.

Although the Fair Work Act 2009 applies to employers and employees, parts of the Act also protect contractors. This could include protections from a hirer who refuses to engage you because you’re a union member or because you have previously made an unfair contract claim. The Act also provides for penalties to be imposed on employers who engage in ‘sham’ contract arrangements.

Consumer laws


Your contract with the hirer is subject to the Australian Consumer Law (ACL).

Misleading or deceptive conduct is prohibited under the ACL

This means parties must be truthful and not create a false impression. For example, a person must not:

  • encourage someone to enter into a services contract by deceiving them about what their true entitlements would be under that contract
  • mislead or deceive the other party by encouraging them to enter into a contract on the promise that certain work will be provided

'Unconscionable conduct’ is prohibited under the ACL

This means that a person must not behave in a way that is not just or reasonable in the circumstances, to the point of being highly unethical. For example, you couldn’t encourage a person with limited knowledge of English to sign a contract when they clearly don't understand it.

Protection for small business from unfair contract terms


ACL protects small businesses from unfair contract terms if they have less than 20 employees and are entering into or renewing a standard form contract valued up to $300,000 ($1 million if the contract is for more than 12 months). A standard form contract is an agreement where the contract is offered on a 'take it or leave it' basis.

If a court or tribunal finds a contract term unfair, the term will be cancelled and your business won't need to meet it. This doesn't apply to terms that:

  • set the upfront price payable under contract
  • define the main subject matter of the contract
  • are required or expressly permitted by law
  • have been negotiated between the parties

The rest of the contract will remain unchanged.

An unfair term can be one that:

  • causes a big imbalance in the rights and obligations of each business
  • isn't needed to protect the interests of either business
  • would cause harm to a small business if it was kept in the contract

Collective bargaining


Independent contractors are not employees, and like other small businesses, they generally operate independently from their competitors.

Forming a collective bargaining group may help independent contractors in negotiations with hirers. Small businesses are often more likely to be heard on the terms and conditions if they join with other small businesses in the negotiations.

This is different from collective negotiations between an employer and its employees for an enterprise agreement. If you decide to join with other contractors to collectively bargain, make sure not to engage in anti-competitive behaviour. This may result in serious penalties.

Without ACCC approval before commencing collective bargaining, you may risk breaching the competition laws. The ACCC may allow collective bargaining arrangements if the public benefits will outweigh any reduced competition.

To learn more, read the ACCC’s Small business collective bargaining guidelines.

Anti-discrimination


Discrimination is when an individual or group is treated less favourably than others due to race, colour, sex, age, disability, religion or other characteristics in anti-discrimination legislation.

A hirer cannot refuse to hire you or change the terms of your contract on the basis of any characteristic considered discriminatory under Commonwealth, state and territory legislation. Similarly, you should not be subjected to bullying, harassment or discrimination while carrying out your contract.

You also have obligations and responsibilities under anti-discrimination laws. You should not bully, harass or discriminate against anyone while carrying out your contract.

Find out more or make a complaint about discrimination or workplace bullying through the Australian Human Rights Commission

Taxation rules and laws


Tax rules do not directly affect the contract you have with your hirer. However, where you must charge goods and services tax (GST), the tax rules may indirectly affect:

  • the potential profitability of your work with a hirer
  • what you think you should charge for your services

In this respect, it’s important to understand your tax obligations. 

Check the ATO's comparing employee and contractor tax and super obligations.

Australian business number (ABN)

As a contractor you have tax obligations. The Australian Taxation Office (ATO) provides ABNs to eligible businesses for tax administration purposes. Generally, the impacts around having an ABN for contractors are:

  • if you don't have an ABN, your hirer must withhold the top rate of tax plus the Medicare levy and send it to the ATO
  • if you have an ABN, you are responsible for reporting and paying your own tax
  • if you have an ABN and your total receipts are more than $75,000 in a 12 month period, you must:

Voluntary withholding tax arrangements with your hirer

You may be eligible to enter into a voluntary agreement with the hirer so they can withhold tax for you. This may simplify the administration of your taxation. Further information on withholding tax is available from the ATO.

Find out about other taxation requirements that may affect you, such as:

Superannuation


Under some circumstances, the hirer may have to pay your superannuation guarantee contribution in addition to the pay for the work you do. Make sure you check this before you agree to the contract. If the hirer is required to pay your superannuation guarantee contribution, your contract price may change to reflect the extra expense to the hirer.

Your business structure is also an important factor in determining whether the hirer must pay. To find out if the hirer must make superannuation contributions for you, use the ATO's ‘Am I entitled to super?’ online tool.

Individuals and sole traders

If your contract is for the hours you work rather than to achieve a specific result, and you do the work yourself, then the hirer may have to pay the superannuation guarantee for you.

Partnerships, trusts and companies

Partners are responsible for paying their own superannuation regardless of whether the contract is for the hours you work or to achieve a result. But if you’re an employee or a director of your own company or trust, then the company/trust must pay the superannuation guarantee for you. This is because a company is a separate legal entity and, as such, you are an employee of that entity. You’ll have to pay the superannuation guarantee charge (a tax penalty) if you either:

  • don't pay enough
  • you miss the payment cut-off dates

Transport industry law


The Heavy Vehicle National Law (HVNL) protects drivers in the transport industry. The law bans the use of contracts that cause or encourage drivers of heavy vehicles from breaking the law, such as exceeding a speed limit or driving while impaired by fatigue.

Work health and safety (WHS) and workers’ compensation


As a contractor, you’ll have and be owed WHS duties in the course of your work. WHS laws are implemented, regulated and enforced separately by each state and territory and the Commonwealth. You will need to consider the WHS laws that apply in your jurisdiction.

In general, a person who engages you to work in their business will have a duty to ensure your health and safety at work, as far as reasonably practicable. People with management or control of workplaces are also required to ensure, as far as reasonably practicable, that the workplace is without risks to the health and safety of anyone, including contractors. At the same time, you must:

  • take reasonable care of your own health and safety at work
  • ensure your actions or omissions don’t adversely affect the health and safety of others

The Commonwealth and each of the states and territories have their own workers’ compensation schemes. Workers’ compensation coverage differs between jurisdictions, so it’s important to find out more about your jurisdictions’ scheme to see if you’re covered.

If you’re not covered by the Independent Contractors Act 2006, then some state industrial relations laws may still apply to you. This is only where both you and the hirer enter into a contract as individuals - when neither you nor the hirer is a company.

Building & construction industry payment security


Contractors in the building and construction industry can get help to recover payments from a hirer under security of payment laws. In most states, these laws provide a dispute resolution mechanism for contractors whose hirers owe them progress payments for work performed.

You can use this system for either verbal or written contracts and be covered by the state or territory law where you did the work. In most states, you may issue the hirer with a payment claim, which gives them a strict time frame in which to either pay upfront or pay under a payment schedule. If they don’t respond, you may be able to take your dispute to adjudication where the hirer can be forced to pay immediately. Check with the appropriate authority to see how the laws operate where you do your work.

It’s always best to try to resolve the dispute first through discussion and negotiation. This can help you maintain a good business relationship with the hirer, which is important if you want future work with them.

International contract laws


If your contract is with a hirer based in another country, or part of the work will be done in another country, you may be required to comply with the laws of that country. Some international contracts specify which country's law will apply in deciding future disputes. It’s a good idea to consider including a clause like this so you don't waste time and money deciding which court, in which country will hear a dispute. Bear in mind that if you have a dispute relating to a contract that applies to the law of another country, any claim you make in that country is likely to be very expensive.

Australia may also be a party to a free trade agreement with the country which may impact on your contract. The laws of other countries may be different from Australian law in areas such as:

  • import procedures
  • taxation
  • employment practices
  • currency dealings
  • property rights
  • protection of intellectual property
  • agency or distributorship arrangements

It’s strongly recommended that you get advice from a lawyer in the relevant country.

Austrade, the Australian Government's trade and investment development agency, has a number of overseas offices that can help you find a legal representative.

  

Need help?

If you need help understanding your rights and responsibilities as a contractor, visit the Fair Work Ombudsman’s help page for independent contractors.