Independent contractor agreements

The whole of relationship test

Between 2022 and 2024 the position was that the written contract largely decided the question. That changed on 26 August 2024. Section 15AA now directs attention to the totality of the relationship: the terms of the contract and how the contract is actually performed in practice.

No single factor decides it. The courts weigh a familiar list.

• Control. Who decides how, when and where the work is done. A genuine contractor controls the method.
• Delegation. Can the worker send someone else to do the job. An unfettered right of delegation points strongly to a contract for services.
• Financial risk. Who bears the cost of rectifying defective work, and who profits from working efficiently.
• Tools and equipment. Who provides the vehicle, the plant, the software and the phone.
• Integration. Whether the worker presents as part of your business, with your uniform, your email address and your business cards.
• Exclusivity and hours. Whether they work for anyone else and whether they are expected to be available on set hours.
• How they are paid. By result and on invoice, or by time at a periodic rate.

There is a separate opt-out available to workers earning above the contractor high income threshold, who can elect for the earlier start of relationship approach to apply. That is a narrow carve-out and it requires a proper notice.

What it costs to get it wrong

The exposures are cumulative, and they come from different regulators with different limitation periods.

The superannuation point catches people out even where the contractor classification holds up. Under the Superannuation Guarantee legislation, a person engaged under a contract wholly or principally for their labour is treated as an employee for superannuation purposes. A sole trader consultant paid an hourly rate for their own work is very often in that category.

What the agreement should say

The document does not decide the question, but a good one aligns with reality and gives you the commercial protections that employment law would otherwise supply.

1. Describe the deliverable, not the hours. A scope with outcomes reads like a contract for services. A roster does not.
2. Include a genuine right of delegation, subject to reasonable approval, and let it actually be used.
3. Require their own insurance, public liability and professional indemnity as appropriate, with certificates of currency provided annually.
4. Require their own ABN and equipment, and make them responsible for their own tax.
5. Assign intellectual property to you. This is the clause clients most often forget. A contractor owns what they create unless it is assigned in writing.
6. Include confidentiality, and a restraint that is proportionate to the access they have.
7. Deal with subcontractor compliance if they may delegate, so their people are also bound on confidentiality and intellectual property.
8. Set the payment terms and invoicing requirements, and make payment conditional on a compliant tax invoice.
9. Include a termination right on notice, and say what happens to work in progress.

Reviewing the arrangements you already have

If you have long-standing contractors, the sensible step is a review rather than a rewrite. Look at the people who have worked only for you for years, who work set hours, who use your equipment and who could not send a substitute. Those are the arrangements that will not survive scrutiny.

You have three options for each of them: change the arrangement so it genuinely operates as a contract for services, convert the person to employment prospectively, or accept the risk with your eyes open and price it. What does not work is doing nothing and hoping, because the exposure grows every pay cycle and the entitlements accrue in the background.

Where a worker has already made a claim, or the ATO or a state revenue office has started asking questions, get advice before you answer. The characterisation argument is fact-heavy and the material you produce early tends to define the fight. See also legal advice for an operating business.