If you are interested in hiring an independent contractor for your business it is essential that you:
- Understand the key differences between employees and independent contractors to make sure you are working under the right arrangement; and
- Have a detailed independent contractor agreement in place.
What is the difference between employees and independent contractors?
Independent contractors work for themselves, not you and can sometimes be referred to as freelancers or consultants. Key features of being an independent contractor include that the person can work for multiple businesses at once, often works on a short-term or per-project basis, can sub-contract their work, negotiate their own fees, working arrangements and are responsible for paying their own superannuation and tax There are many resources available to help businesses determine whether a person is a contractor or an employee, see for example:
It is important as a business owner that you get the right structure in place. If you incorrectly characterise someone as an independent contractor and that person is later found to have been your employee – you may be responsible for payroll, superannuation and other employments – all which will come at a cost to your business.
What agreement do I need to have in place with an independent contractor?
An Independent Contractor Agreement is an agreement between your business and a contractor, supplier or service provider which sets the essential terms of your working relationship. An Independent Contractor Agreement will provide your business with important legal rights including, but not limited to:
- Detailed Information about fees and payment;
- A detailed description of the expected scope of work and any applicable milestones;
- A process for varying the scope of work and renegotiating any fees;
- Who owns the intellectual property in the work that is created? Usually, you would want any IP that is developed by the contractor in the course of providing the services to be owned by your business;
- A right to end the relationship with the contractor without having a reason by giving a certain number of days notice;
- A cap on the financial exposure of your business (known as limitation of liability) under the Agreement; and
- A right to have the confidential Information of your business protected from mis-use.
What else can an Independent Contractor Agreement be called?
An Independent Contractor Agreement may also be referred to as a Contractor Agreement, Services Agreement, Freelancer agreement, or a Consultancy agreement. All of these agreements govern the provision of service.