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All you need to know about what an independent contractor is

05/01/2023 by
The Marketing Team
Contractor vs employee? What's the difference? Who’s the boss? In this Business Kitz blog, we clear up all your confusion and we will take you through everything you need to know about who a contractor is. As per the Australian Government, an independent contractor runs their own business by offering their services and is not […]

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Contractor vs employee? What's the difference? Who’s the boss? In this Business Kitz blog, we clear up all your confusion and we will take you through everything you need to know about who a contractor is.

As per the Australian Government, an independent contractor runs their own business by offering their services and is not employed by others. They mainly use their own tools, work arrangements and methodologies while working and may work for more than one client at a time. Contractors also have their specific workplace rights, protections and obligations with respect to insurance, super and taxes. 

Examples of an independent contractor:

Here are some common examples of an independent contractor:

  • Carpenters. 
  • Electricians.
  • Painters.
  • Mechanics.
  • Plumbers.
  • Elevator works.
  • Construction.

Roles and responsibilities of a contractor:

The roles and responsibilities of an independent contractor can vary in terms of the field, industry or project they work with, but the general roles and responsibilities include:

1. Maintaining legal and regulatory responsibilities:

The contractor has to ensure that the correct permits have been applied for and makes sure that all aspects of the project being undertaken are compliant with all the necessary legal and regulatory requirements. 

2. Maintaining health and safety responsibilities and obligations:

This includes providing safety gear and equipment, spreading the awareness of safety and related policies, and having preventive measures, risk management and emergency response strategies ready. 

3. Planning and managing the undertaken project 

Planning the project and its implementation is crucial in terms of project execution and specifications. This involves budgeting, strong communication, cooperation with subcontractors and managing expenses. The contractor should also plan in advance and anticipate any changes or modifications. 

4. Constant monitoring of the undertaken project:

This responsibility includes monitoring various time schedules, roles and responsibilities, quality of work and safety guidelines. It also includes reviewing, and updating the project based on feedback and techniques required. 

Pros and cons of being a contractor

Pros:

Greater freedom:

This is one of the greatest pros of being an independent contractor. Freedom in this context relates to having control over building your own business, right from hiring the required subcontractors to setting the working hours, to deciding which projects to take up and so on. 

Flexible work:

Contractors are also not required to go to work everyday. Depending on the project and its requirements, the contractor can work from home or remotely as long as they are able to plan and manage the project effectively. 

Greater variety of work:

Since contractors are self-employed and are not restricted in that sense, they can pick and choose their clients and take up as many projects as possible. This therefore provides them with a greater variation and exposure to work and working hours. 

Cons:

Varying income: 

There is a high chance that the income contractors make is constantly fluctuating due to unpredictability and lack of consistency. Since contractors are responsible for all of their expenses and costs, and are not reimbursed for it, it can become difficult. 

Lack of benefits:

Unlike employees, contractors are not eligible for any benefits like health insurance, vacation, superannuation, that an employer would provide. Contractors are expected to fund these themselves even though they are expensive. 

Subcontractors vs contractors

When hiring a contractor for a project, the contractor can go ahead and hire subcontractors who are required for specialized responsibilities. A subcontractor communicates and cooperates with the contractor and does not necessarily engage with the primary client. Take for example, a building contractor may require the services of a subcontractor who specializes in electrics to complete and present their final product. 

For more information about how to become a subcontractor and the benefits of being one, we have a blog for you!

Employee vs contractor

There are a number of indicators that differentiate an employee from a contractor. These include:

Control over work:

An employee has to work as per the direction of their specific employer, which includes the tasks and responsibilities, working hours, location and pay. In this context, the employee has no control apart from their own input. On the other hand, a contractor has a high level of control over their work in all aspects.   

Risks and responsibilities:

When it comes to being accountable for responsibilities and risks, an employee does not have to worry because the employer will be held responsible. Unlike employees, a contractor is very much responsible for complying with various requirements and can be liable.  

Equipment and supply management:

Employees are mainly provided for and given access to the most equipment and supplies by the employer. Contractors however, fund and source their own tools and equipment based on the nature of their work and services. 

Delegation: 

Employees are assigned tasks and responsibilities and are expected to complete it themselves, without delegation, unless they have a senior-level position. Contractors can delegate and hire subcontractors to complete certain tasks for them. 

Method of payment:

Unlike contractors, an employee will typically receive a set and consistent payment based on their employer. As for contractors, they are required to have an Australian Business Number (ABN), send a quote to the client and are paid through invoices.

Working hours:

Working hours of an employee are generally set and standardised, and are expected to be met as per their contract. The working hours are varied for a contractor as it is determined and negotiated between the client and the contractor. 

For people who like being their own boss, flexibility, and a tad bit of risk, being a contractor is definitely a great way to earn a living. Business Kitz offers an Independent Contractor Agreement Template and an Australian Subcontractor Agreement Template which will ensure (as a subcontractor) you are protected from any illegal or dishonest statements or actions from the hiring business.

Legal advice

Note that the hiring business must legally identify the worker as a contractor or employee from their initial employment. If you are incorrectly treated as a contractor or subcontractor when you were hired as an employee, the business must account for PAYG on your wages, pay you superannuation and provide annual and long service leave. Incorrectly classifying an employment relationship as a contractor relationship may result in a range of liabilities for a business, including breaching protections against sham contracting arrangements under the Fair Work Act 2009 (Cth) and other issues such as underpayment. 

If you are a contractor or looking to become one, it is important to safeguard your work and ensure you are treated fairly by the hiring company. If you are looking for advice on how to ensure your work is safeguarded or are worried you are an employee being treated like a contractor within your company, please do not hesitate to contact our sister company, Legal Kitz. You can contact us by phone on 1300 988 954 or email to info@legalkitz.com.au. We offer a FREE 30-minute consultation for all your legal needs. 

About
The Marketing Team
Business Kitz Marketing team are experts in their field. You can expect the best business guides and updates on employment law here.

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