Independent Sales Contractors
Independent Contractors
GENERAL DESCRIPTION
An independent contractor is an entity such as an individual, partnership, trust or company that agrees to produce something or provide a service for an agreed price. Companies that hire independent contractors cannot have a contractual relationship of that of an employer-employee.
In most cases, unlike an employee, an Independent Contractor:
- is paid for results achieved
- provides all or most of the necessary materials and equipment to complete the work
- is free to delegate work to other entities
- has freedom to control the course and the ways of performing the work
- accepts the commercial risk and responsibility for poor workmanship or injury sustained performing the work
- is free to accept or refuse work
- does not receive paid leave (for example, sick, annual or recreation, or long service leave)
In Australia, Independent Contractor Agreements (also known consultant’s agreement) is governed by the Independent Contractors Act 2006 (Cth).
INSTRUCTIONS:
A key factor in deciding if a worker is an employee is the degree of control that can be exercised over the worker. If Companies have the right to direct how, when, where and who is to perform the work, the worker is likely to be an employee. These directions may be oral or in writing, or simply understood between the parties.
Other key factors are whether:
- the worker is being paid for the time worked by them personally, or
- whether the worker is being paid to achieve a result where they are able to subcontract or engage employees to perform the work.
If a worker is an Independent Contractor, Companies are required to withhold an amount from payments to them only where the contractor:
- has entered into a voluntary agreement
- provides their work or services for a client of Companies’ under a labour hire arrangement, or
- has not quoted their ABN to Companies .
Superannuation guarantee laws may apply to payments for work or services by an independent contractor in some cases.
- Most Independent Contractors provide for their tax obligations through the PAYG instalments system.
- Contractors should also consider whether they need to apply for an ABN and register for goods and services tax (GST).
- Contractors who come under the contractor tax rules must include their personal services income in their individual tax return and cannot claim some tax deductions.
- Those operating through a company, partnership or trust may also have PAYG withholding obligations.
If a worker has an Australian business number (ABN) this does not automatically mean the worker is a contractor. Companies still need to consider the nature of Companies’ agreement with the worker.
Note: Employers who do not comply with their PAYGW tax obligations may be subject to:
- penalties up to 100% of what should have been withheld
- prosecution in appropriate cases.
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