It is becoming increasingly common for businesses to hire contractors instead of employees to provide certain services. As contractors often have niche skillsets, hiring a contractor may be a more cost-effective way of getting specific work done. To hire a contractor, you will need a valid and effective Contractors Agreement. Whether you are hiring for the short or long-term, it is important to draft the agreement correctly to ensure that it is legally binding. In particular, the ‘fees and invoicing’ clause sets out each party’s rights and obligations when it comes to payment.
1. Paying for the Contractor’s Services
The Principal will pay the Contractor the Fees set out in the Schedule (exclusive of GST).
The above provision confirms that you, as the principal (business owner), have the intention to pay for the services stated in the Contractors Agreement. If applicable, you should also state in your agreement that GST is excluded from the fees set out in the Schedule.
2. Reimbursement for Out-of-Pocket Expenses
The Principal will reimburse the Contractor for any pre-agreed out of pocket expenses for the Services.
Your contractor may incur out-of-pocket expenses such as buying extra supplies or additional travel as part of the job. Whatever it may be, it is sometimes necessary to reimburse the contractor for these expenses. You should include this in a clause in your Contractors Agreement. As long as the expenses are necessary for the service itself, then this usually will be a standard and reasonable sub-clause.
3. Fees Subject to Change
The Fees payable to the contractor to perform the Services may be adjusted from time to time as agreed by the Parties in writing (including by email) on account of changes in relation to the nature of the Services to be performed by the contractor pursuant to this agreement.
Sometimes the initial quote will not cover the scope of the work, or it may be too much and need to be adjusted accordingly. This sub-clause allows you to make that adjustment. Keep in mind that a clause like this will only be enforceable if the fees can be adjusted to be made more affordable or more expensive.
4. Provision of a Compliant Tax Invoice
In order to receive payment under this clause, the Contractor must provide the Principal with a tax invoice that complies with any invoicing guidelines released by the Australian Taxation Office from time to time that includes the Contractor’s ABN, a description of the Services and any receipts for pre-agreed out of pocket expenses.
This sub-clause is particularly important to ensure you are fulfilling your tax obligations. This clause requires the contractor to provide you with a tax invoice that is compliant with the Australian Tax Office’s (ATO) invoicing guidelines. The tax invoice should include:
- the contractor’s ABN
- a description of the Services; and
- any receipts for pre-agreed out of pocket expenses.
This sub-clause should feature in every Contractors Agreement.
5. Unpaid Invoices and Debt Recovery
If invoices are unpaid for  days, the contractor has the right to engage debt collection services for the collection of unpaid and undisputed debt, and the right to commence legal proceedings for any outstanding amounts owed to us. The principal acknowledges and agrees that it is liable for and will pay all costs including debt collection, commission, solicitor’s fees and any out of pocket expense and that the contractor may place a default against the principal with a credit reporting agency. The principal will indemnify us for the full amount of our legal and debt recovery costs.
All Contractors Agreements should have a sub-clause that secures payment of services to the contractor. It should set a time and have the principal acknowledge legal responsibility for paying all debts and costs. These costs include expenses incurred in pursuing any debts, for example, legal fees and debt recovery costs. As this clause protects the contractor, they will likely require one to be drafted in the agreement.
Contractors Agreements detail the terms and conditions of short-term work arrangements between skilled contractors and business owners. The fees and invoicing clause in Contractors Agreements set out how a contractor is to be paid. It is important to draft this clause correctly to ensure that it is enforceable and legally binding. If you have questions about the fees and invoicing clause in your Contractors Agreement or if you need assistance drafting an Agreement, get in touch with LegalVision’s contracts lawyers on 1300 544 755 or fill out the form on this page.
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