Laws affecting contracts
There are a number of laws that will affect most contracts. However, there are many other laws that could apply to an independent contracting arrangement in your particular profession or industry.
For example, in the building industry there are laws that affect contractual terms such as licensing and staging payments. If you work for a franchise, franchising laws may also be relevant. Therefore, it is important to check with your industry association, union or a lawyer to ensure that your contracts take into account the relevant laws.
The difference between employment and independent contracting arrangements is important when working out which Commonwealth, state and territory laws apply to you:
- Employment relationships are regulated by specific labour protection laws which provide minimum terms and conditions of employment.
- Independent contracting arrangements are usually treated as ordinary commercial contracts regulated by general commercial laws that apply to business dealings.
- Independent contractor arrangements are subject to commercial laws that apply to business dealings.
Independent contractor laws
Generally speaking, the Commonwealth Independent Contractors Act 2006 (the Act) overrides state and territory legislation that would otherwise apply to independent contractors.
For example, laws which 'deem' an independent contractor to be an employee, or which provide remedies in relation to independent contracting arrangements. The Act does not override owner-driver laws in Victoria and Western Australia, some owner-driver laws in New South Wales and national outworker laws. Under the Act, an independent 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 provide general protections for independent contractors. These could include protections from a hirer who refuses to engage you because you are 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.
Your contract with the hirer will be subject to the Australian Consumer Law (ACL).
'Misleading or deceptive conduct' is prohibited under the ACL. This means that parties must act honestly. 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 also 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, by encouraging a person with limited knowledge of English to sign a contract when they clearly don't understand it).
In deciding whether conduct was unconscionable, a court may look at:
- the relative bargaining strength of each party
- whether any undue influence or pressure was applied or unfair tactics used
- whether the conditions of the contract were reasonably necessary for the protection of legitimate interests
- whether the affected party was able to understand any documents relating to the supply of the services
- whether a single party had the sole right to change a term or condition of the contract
- whether a single party was willing to negotiate the terms and conditions of the contract
- the extent to which the parties acted in good faith.
Collective bargaining describes competing independent contractors coming together to negotiate terms and conditions (including price) with a hirer. It has been recognised that small businesses are often more likely to be heard on terms and conditions if they join with other small businesses to collectively negotiate with a larger business, rather than one-on-one.
This type of collective bargaining is different from collective negotiations between an employer and its employees for an enterprise agreement. If you decide to join with other independent contractors to collectively bargain, you need to be mindful not to engage in anti-competitive behaviour as this may result in serious penalties.
You may apply to the Australian Competition and Consumer Commission (ACCC) for permission to collectively bargain with a hirer. The ACCC will only approve the arrangement if it is satisfied that the arrangement is in the public interest. The ACCC has allowed collective bargaining by a range of independent contractors.
Discrimination occurs when an individual or group is treated less favourably than others on the grounds of race, colour, sex, age, disability, religion or a number of other characteristics outlined 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.
Tax rules do not directly affect the contract you have with your hirer. Where you must charge GST, the tax rules may indirectly affect the potential profitability of your work with a hirer and influence what you think you should charge for your services. In this respect, it is important to understand your tax obligations.
Australian Business Number (ABN)
As an independent contractor you have tax obligations. The Australian Taxation Office (ATO) provides you an ABN for tax administration purposes. Generally, the rules are:
- if you don't have an ABN, your hirer is required to withhold the top rate of tax plus the Medicare levy and send it to the ATO
- if you have an ABN, you must organise your own tax.
- if you have an ABN and your total receipts are more than $75,000 in a year, you must:
- register for GST
- charge GST on your invoices (+10 per cent)
- send GST payments to the ATO.
Business activity statements
If you have an ABN you will be required to fill out a regular Business Activity Statement (BAS). This requires you to declare how much GST and income tax you owe. It must be sent to the ATO. Your regular income tax payments are an estimate of how much income tax you owe.
At the end of the financial year you will still need to complete your tax return and will receive a refund or owe more tax depending on the result of your annual income tax assessment.
Personal Services Income (PSI) tax laws
There are also special tax rules to ensure that you do not use business structures to avoid your income tax obligations. If you operate as an individual (not a partnership, company or trust) you are entitled to claim certain expenses as tax deductions necessary to earn your income.
The PSI rules may affect the deductions you can claim.
If you operate as a partnership, your partnership is entitled to claim as tax deductions certain expenses necessary to earn partnership revenue. The partnership income is then distributed to each partner. Each partner must pay tax based on net income. The PSI rules may alter the allocation of income and expenses between partners.
If you operate as a company or trust, the PSI rules may particularly affect you. The rules cover such issues as retaining income in the company, splitting income and some deductions. Voluntary withholding tax arrangements with your hirer You may also be eligible to enter into a voluntary agreement with the hirer that will enable the hirer to withhold tax for you. This may simplify the administration of your taxation. Further information on this option is available from the ATO.
To check if PSI and other income tax avoidance rules affect you, check with your tax adviser.
Even if you have an ABN your hirer may still have to pay the Superannuation Guarantee. This needs to be checked before you agree to the contract. Under some circumstances, the hirer may have to pay your Superannuation Guarantee contribution in addition to what they pay you for the work you do.
Your business structure is an important factor in determining whether the hirer must pay. 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 are 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. If you don't pay enough, or if you miss the payment cut-off dates, you will have to pay the Superannuation Guarantee charge which is a tax penalty.
Superannuation and your 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.
State and territory laws
Under some state and territory laws you may be covered by their workers' compensation laws even though you are an independent contractor. Under all state, territory and Commonwealth Workplace Health and Safety (WHS) laws, you will also have rights and obligations.
Workers' compensation insurance ensures that benefits are paid to a worker (or the worker's family) if the worker suffers a job-related injury, death or disease.
WHS/OH&S laws tend to apply to workplaces and premises rather than specific contractual relationships. Generally, the hirer must provide a safe workplace for you and you must ensure that your actions don't put yourself or others at risk. You must also alert the appropriate people to hazardous workplace situations and report all accidents and injuries.
If you are not covered by the Independent Contractors Act 2006, then some state industrial relations laws may still apply to you, but only where both you and the hirer enter into a contract as individuals (for example, when neither you or the hirer is a company). OH&S and workers' compensation laws vary between the states and territories, so it is important to check the rules in your state or territory. If you perform work for the Commonwealth Government, the Commonwealth's laws may apply.
Protecting small business from unfair contracts
From 12 November 2016, a change to Australian Consumer Law (ACL) will protect small businesses with less than 20 employees 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. 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, and
- would cause harm to a small business if it was kept in the contract.
The new law doesn't apply to terms that set the price to be paid under a contract.
Security of payments in the building and construction industry
Independent contractors in the building and construction industry can get help to recover payments from a hirer under state and territory security of payments laws. In most states, these laws provide a dispute resolution mechanism for building and construction contractors who are owed progress payments for work performed for a hirer.
If you work in the building and construction industry, you can use this payment dispute resolution system regardless of whether your contract is verbal or written. You will be covered by the law of the state or territory in which the work is done. In most states, security of payments laws can allow you to issue the hirer with a payment claim, which gives the hirer a strict timeframe in which to respond with either payment or a payment schedule.
If the hirer does not respond, you may be able to take your dispute to adjudication where the hirer can be forced to pay immediately. However, security of payment laws are slightly different in each state and territory. You should check with the appropriate authority to see how the laws operate where you do your work.
Remember that it is always best to try to resolve the dispute in the first instance through discussion and negotiation. This can help you maintain a good business relationship with the hirer, which is important if you want to secure future work.
Contracts in the transport industry
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.
Laws affecting international contracts
If your contract is with a hirer based in another country or some 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 is 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 the dispute. You should bear in mind that should a dispute arise in relation to a contract that applies the law of another country, any claim you make in that country is likely to be very expensive for you.
Australia may also be a party to a free trade agreement with the country, which may impact on the contract. The laws of other countries maybe different from Australian law in areas such as import procedures, taxation, employment practices, currency dealings, property rights, the protection of intellectual property and agency/distributorship arrangements.
It is 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.
What to do...
Learn more about unfair contracts under Australian Consumer Law:
- Visit the Australian Competition and Consumer Commission (ACCC) website or call the ACCC Small Business Helpline on 1300 302 021.
- Contact a fair trading or consumer affairs office in your state or territory.
- Find out how to make a complaint about an unfair contract on the ACCC website.
Learn more about collective bargaining:
- Read the ACCC's Small Business Collective Bargaining Notifications & the Competition and Consumer Act.
Find out more or make a complaint about discrimination or workplace bullying:
- Contact the Australian Human Rights Commission on 1300 656 419.
Find out about tax and superannuation rules for independent contractors
- If you have a question about your tax obligations or a debt, it may help to speak to an ATO officer—call the ATO's small business tax help service on 13 28 66.
- To determine whether you are an independent contractor for tax purposes, use our Contractor Decision Tool.
- To find out if the hirer must make superannuation contributions for you, use the ATO's online Superannuation guarantee eligibility decision tool.
Learn how state and territory WHS and workers' compensation laws apply to you:
- Visit our WHS topic for more information.
- Find out about security of payments in the building and construction industry.
- Go to the Payment disputes in the building & construction industry page for payment disputes in the building and construction industry.
- Contact your industry association or the government building authority in your state or territory.
Get advice about an international contract