On this page
- Who's classified as an independent contractor
- Step-by-step guide to compliance requirements
- Key factors to consider
Independent contractor explained
An independent contractor is someone who is self-employed and provides services to clients. This is also known as contracting or sub-contracting. Generally, independent contractors set up using the sole trader business structure and run their own business with their own Australian Business Number (ABN).
Independent contractors are paid for the results they achieve and are personally responsible if their business makes a profit or loss. They are usually engaged for a specific task and invoice the client when the task is completed.
They commonly work in the construction and IT industries, creative industries such as music and film, and as owner drivers and forestry contractors.
Become an independent contractor
Once you make the decision to become an independent contractor, you will need to:
- understand your tax obligations
- check Business.gov.au and Independent Contractors Australia for information about other key compliance issues such as super, insurance and workers compensation
- think about whether you need to register a business name - this task is optional if you are trading under your personal name
- check that your proposed business name doesn't infringe on existing trademarks - use TM Check to find out
- apply for the relevant licences and registrations
- protect your intellectual property
- find the right insurance to protect yourself against business interruptions (e.g. legal claims or work injuries).
Key factors to consider
Consider the following if you decide to register as an independent contractor:
Minimum wages & conditions
As an independent contractor, you are not entitled to minimum wages or conditions such as annual leave, sick leave and notice of termination that are in the National Employment Standards or an award. You usually will have to negotiate the rates as part of a contract, including any extra conditions like leave, allowances and payment terms.
You also have to bear commercial risks. You are also legally responsible for your work and may not be entitled to workplace compensation unless you have arranged your own accident protection insurance.
ABN, tax obligations, insurance
Independent contractors work under their own ABN, pay their own taxes and GST (if applicable) to the ATO. They also pay their own superannuation, although in some circumstances they may be entitled to paid superannuation entitlements if their employer provides all or most of the necessary materials and equipment needed to complete the work. Use the ATO Employee/contractor decision tool to check.
Independent contractors get their own insurance (unless they are a "deemed" employee. For example, some workers in certain industries are deemed as employees and are afforded the same treatment and rights as regular employees, even though they have been hired as independent contractors). More information on "deemed" employees can be found in the Australian Government independent contractor laws - Interaction with state laws section.
Protecting your rights
Independent contractors and principals are afforded limited workplace rights, and the right to engage in certain industrial activities. An independent contractor or principal is protected from adverse action by any person in relation to the decision to exercise or potentially exercise their rights under these provisions.
A sham contracting arrangement occurs where an employer attempts to disguise an employment relationship as an independent contracting arrangement. This is usually done for the purposes of avoiding responsibility for employee entitlements.
The Fairwork Ombudsman can help investigate alleged sham contracting arrangements and prohibited conduct in relation to reform opt-in agreements. Visit the Fairwork Ombudsman website for more information on sham contracting arrangements and how the Ombudsman can help you.
Special protections apply to owner drivers and forestry contractors in the transport and forestry industries, including receiving information (rates and costs schedules and an information booklet) from hirers to assist them in running a successful business.
Dealing with unfair or harsh contractsThe Independent Contractors Act 2006 allows independent contractors to ask a court to set aside or change a contract if it's harsh or unfair. For more information about unfair contracts and the Act, please call the business.gov.au at 13 28 46. Business.gov.au also has tools and resources on negotiating good contracts, tax and super obligations and managing disputes.
Case Study: Starting business as an independent contractor
'I like to say I have the best and the worst boss in the world, but, if you've got a marketable skill and you are prepared to put in the business preparation, it can be very rewarding.'
David Johns, photographer
Read more about How to become an independent contractor