The rise of 'Independent contractor' agreements – what you need to know.


The rise of 'Independent contractor' agreements – what you need to know.

In the new ‘hybrid’ working environment, as workers take more control over where and how they work, employers need to be aware that employees (particularly the skilled ones we want to recruit and retain) will increasingly hold significantly more power in negotiations around wages and employment conditions than they’ve had in the past.

We’re already experiencing this to a significant degree – mostly precipitated by the Covid-19 pandemic which gave birth to a much wider range of  ‘work from home’ arrangements, but it’s also being exacerbated by the current skills shortage and the strong desire of businesses to attract and keep good people.

But the Australian Tax Offices recently drafted new rulings around independent contracting. Here’s what you need to know.

By Michael Mekhitarian

Here's a true story

Ultimately, I consider the ATO’s new ruling a win/win and good news for business.

Why? It provides businesses with more clarity. It also provides employers and employees with a clear ‘independent contracting’ option.

And choosing to work with independent contractors can really benefit small and medium sized business, particularly at this time, as we continue to keep a watchful eye on overheads.

In areas like marketing and IT they’re a fantastic option, because these are vital services, but ones that aren’t necessarily needed full time.

Furthermore, when your employee becomes a ‘contractor’ you are still able to access their skills and inherent organisational knowledge, and they have options to seek other opportunities outside of just working with you, which keeps them challenged, motivated and fresh.

It also gives them the opportunity to have flexible hours and to increase their earning potential.

Many HR experts are already saying that Independent contract arrangements will become the next big thing in employment over the coming years.

Yes, for many years they have existed in industries such as communications and media – particularly journalism, advertising, and creative services like graphic design, but they will soon start to become more of the ‘norm’ in other professions such as law, accounting, technology and computer services, engineering, sales and marketing, and education too.

The evolution of the 'gig' economy

The ruling definitely signals the evolution of the ‘gig economy’.

BUT – the greatest word of caution to businesses engaging independent contractors is to ensure that the ‘terms of engagement’ are also clearly defined.

Many arrangements have typically been documented in a few emails or even only verbally, and this can cause problems if anything goes wrong. Trust is important when you’re engaging people to work for you in whatever capacity, but as any HR lawyer will tell you, it’s best written down, so everyone knows where they stand. And if anything goes wrong, then you have the contract to come back to.


Have clear contracts and agreements in place

So, make sure you have contracts in place –  either to cover individual projects, or a longer-term working arrangements, for example,  perhaps a retainer and a set number of hours per month. Include clear, established and agreed deliverables. The other thing to consider, particularly if an existing employee is changing status to an ‘independent contractor’ is conflicts of interest. You might have to have an open discussion about working with direct competitors and include clauses in your contracts.

Of course, privacy and confidentiality causes relating to your business information and client information as well as reposibilities around protecting data while working ‘off-site’ are critical.

The ATO’s rules revolve around two basic, easy to understand principles – the actual contract and the nature of control. It’s definitely worth looking at the information online.

As an employer you need to understand your obligations with regard to these ‘independent contractor’ working arrangements, particularly around tax and super.

The ATO’s advice in terms of what distinguishes an employee from a contractor is whether a person is an employee is published here.

If you want to have a chat about how this might affect your business, specifically around budgets, accounting, tax and payroll, then please give us a call.


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