Independent contractor

What Is an Independent Contractor?

An independent contractor is a self-employed individual who provides goods or services to another party under the terms of a contract for services. Unlike employees, contractors operate their own business, invoice for their work, and manage their own tax and super obligations.

In Australia, the distinction between an employee and an independent contractor is critical—both legally and financially. Misclassification can lead to penalties from the Fair Work Ombudsman, Australian Taxation Office (ATO), and Safe Work Australia.

Key Features of Independent Contractors

• Control and Autonomy: Contractors set their own hours, choose how work is performed, and often work with multiple clients.
• ABN Registered: They operate a business with an Australian Business Number (ABN).
• Invoice for Services: Payment is made upon receipt of an invoice, not a payslip.
• Responsible for Tax and Super: They pay their own tax and superannuation (unless deemed a deemed employee under certain laws).
• No Leave Entitlements: Contractors are not entitled to paid annual, sick, or parental leave.
• Defined Scope: Their work is usually project-based or for a fixed period, based on a contract.

Employee vs. Independent Contractor: What’s the Difference?

Understanding the difference between an employee and an independent contractor is essential for compliance.

Legal Tests and Classification

The High Court of Australia, in 2022 rulings (e.g. CFMMEU v Personnel Contracting), reinforced that classification hinges on the terms of the written contract rather than day-to-day practice. Employers must consider:

• Nature of control
• Ability to delegate or subcontract work
• Method of payment
• Provision of tools and equipment
• Business risk and opportunity for profit

If a contractor works under direct supervision, uses company tools, and is paid hourly, they may legally be considered an employee, even with an ABN.

Rights and Protections for Contractors

While independent contractors do not receive the same entitlements as employees, they are still protected under various laws:

• Unfair contract terms under the Australian Consumer Law
• Workplace health and safety obligations apply equally to contractors
• Dispute resolution rights through Fair Work or civil courts
• Superannuation may be required if the contractor is paid primarily for labour

WorkSafe – Contractor Safety

Superannuation for Contractors

In some cases, businesses must pay superannuation contributions for independent contractors if:

• The contractor is paid wholly or principally for their labour, and
• They work under contract, even if they invoice with an ABN

This applies even if the contractor calls themselves “independent.”

ATO – Super for Contractors

Examples of Independent Contractors

• A freelance graphic designer working with three clients
• An IT consultant contracted to complete a system migration
• A tradie (plumber, electrician) who invoices per job
• A rideshare driver using a platform like Uber or Ola

Microkeeper and Independent Contractors

Microkeeper supports businesses that engage contractors by offering:

• Customisable contractor profiles within your workforce management system
• Timesheet tracking for billing hours
• ABN-based payroll records (separate from STP)
• Optional contractor portal for submitting invoices and updating availability
• Reporting and payment tracking to streamline compliance and payment history

FAQs: Independent Contractor

Do contractors get annual leave?

‍No, contractors are not entitled to leave entitlements such as annual or personal leave.

Do I need to pay super for a contractor?

‍Sometimes. If the contractor is paid primarily for labour and works under a contract, you may be legally required to pay super.

Can a contractor be converted to an employee?

‍Yes, but the change must be formalised via a new employment contract and include the appropriate entitlements.

Is an ABN enough to prove someone is a contractor?

‍No. Classification depends on the working relationship, not just the presence of an ABN.

Final Thoughts

Independent contractors bring flexibility and specialised skills to Australian businesses, but also introduce legal and compliance considerations. Employers must take care to classify correctly and meet obligations regarding super, safety, and payment. Tools like Microkeeper help streamline the engagement and tracking of independent contractors while reducing risk.

_{Disclaimer: This entry is general information only and does not constitute legal or financial advice. For tailored guidance, consult a lawyer or the Fair Work Ombudsman.}