What to look out for in a contractor agreement

How we work has changed dramatically in recent years due to the Covid-19 pandemic. Much of Australia’s workforce has made a successful transition to a hybrid working model.

In recent years many working Australians have also reevaluated their priorities and are choosing to work less or work differently. Ongoing full-time employment may no longer be the preference for those who can make alternative arrangements work financially. Who doesn’t want more time for family and the things they love?

Those who can pull back from ongoing full-time employment may be drawn to shorter-term contract work to keep their options open. So, if you’re now operating as an independent contractor, or plan to do so soon, it may be worth increasing or refreshing your understanding of the ins and outs of contractor agreements via this contractor guide.

An independent contractor guide to Contractor Agreements

A contractor agreement is used when a business employs an independent contractor. It enables an employer to hire freelancers or consultants as independent contractors to work in their business.

Just like contractor insurance, contractor agreements are critical for independent contractors because they define the scope of the employer-contractor arrangement, including the responsibilities and rights of the contractor.

If you’re a seasoned independent contractor, you likely have plenty of experience with contractor agreements, but it never hurts to brush up on them to make sure you are across everything. So, let’s get up close and personal with the nitty-gritty of contractor agreements and cover off the things you need to pay close attention to.

Contract tips 1: Payment terms

Let’s not beat around the bush here. Independent contractors, like all employees, are in it to get paid. Your contractor agreement should clearly state the agreed payment terms. If you’re not happy with the payment arrangement outlined in the contract – whether the remuneration amount or the timeframe for payment – raise the issue with the employer and request that amendments be made before signing the contract.

Will you receive progress payments, or will you receive a lump sum at the end of the contract term? How will you be paid? Do you need to submit invoices? Will the employer reimburse you for travel expenses?

These are all important payment questions to ask the employer before signing a contractor agreement. And don’t be afraid to request that the contract includes a fee for late payments if the employer doesn’t adhere to the agreed payment terms.

Contract tips 2: Termination terms

The termination terms of the contract – for both parties – should be clearly detailed in your contractor agreement. To do so, the contract must accurately specify what constitutes a breach of the agreement, and what notice period will be given in the event of a breach of the agreement. If necessary, you may discuss terms for when the agreement can be terminated without any notice in the case of severe breaches of the agreement by either party.

Your contractor agreement may also specify what must occur upon termination or completion of the contract. This is where details such as returning employer property used by the contractor sits. It’s also where the contract defines who owns the intellectual property created by the contractor while contracted to the employer. Alternatively, the contractor agreement may also set out an expiry date by which the relationship will naturally come to an end.

Contract tips 3: Role description

Any contractor guide needs to mention that the role description is one of the most important parts of any contractor agreement as it defines and describes the specifics of the work that the independent contractor is agreeing to deliver. The more details that are included here, the better; the role description is no place for ambiguity.In the role description, independent contractors will also find the duration of the work to be done. This may be defined by a specific term – ie, three months – or it may be defined as a set amount of hours.

The role description part of a contractor agreement should also include the schedule. As the contractor committing to delivering the work to an agreed schedule, it’s important that you are clear on what you are agreeing to. If the schedule put forward by the business feels a little tight, raise this with the employer before signing the contract. You don’t want to be caught out agreeing to unrealistic deadlines, so avoid over-promising and underdelivering.

Contract tips 4: Limitations

As an independent contractor, the company you’re contracted to may put limitations around specific things that you can and can’t do while working for them. It’s important to closely read the fine print here – some limitations may only apply while the agreement is active, while others will only apply once the agreement is completed.

Your contractor agreement may also contain a non-compete clause, preventing you from working for a company that is a direct competitor of the business you’re contracted to. However, as an independent contractor you may need to be engaged with more than one business at any given time to ensure a steady and ample flow of income.

If that’s the case, as an independent contractor you can negotiate with employers to remove this requirement. However, it’s up to the employer, and it might not go your way. So it’s worth asking these questions before signing a contractor agreement; it could save you a lot of trouble.

Contract tips 5: Dispute resolution

Speaking of disputes, due to the nature of business relationships, occasionally disputes between independent contractors and employers happen. No-one plans for the worst to happen, but sometimes it happens anyway. To help ensure such situations don’t become any messier than they need to be, make sure that all contracts you agree to include clear details around how disputes will be resolved.

Independent contractors may operate a little differently than other professionals. But they also have a lot in common, including the need for business insurance* in the form of contractor insurance. We know independent contractors are busy, which is why we’ve created an amazingly simple and convenient way to buy contractor insurance online. Visit BizCover.com.au or give us a call 1300 920 864 to see how we can help protect your sole trading business.