Nowadays it is commonplace for businesses to want to hire contractors through a Contractors Agreement to provide certain services instead of employees. Part of the reason for this changing trend is that contractors often have the right skill set for a short-term engagement and some business owners (also known as “principals”) see hiring a contractor as a more cost-effective way of getting the work done. Problems arise when these principals start to believe that they will save money by engaging contractors due to differences in the taxation/superannuation requirements.

Whatever you choose as a principal – whether it’s to hire on a short-term contractual basis or a long-term employment basis, it’s important that you clearly establish which of the two relationships you are seeking to create and have a contract lawyer draft the necessary documents.

Important Sub-clauses

1. The Principal will pay the Contractor the Fees set out in the Schedule (exclusive of GST). 

The above provision simply affirms that the Principal (the business owner) has the intention to pay for the services that are the subject of the Contractors Agreement. Don’t forget to have your contract lawyer mention that GST is excluded from the fees set out in the Schedule (if applicable).

2. The Principal will reimburse the Contractor for any pre-agreed out of pocket expenses for the Services.

Sometimes the contractor may need to buy more supplies to complete the job, or perhaps will need to drive an extra 2 hours to the store where they sell the particular paint you need for your newly renovated house. Whatever it may be, it’s sometimes necessary to reimburse the contractor for these expenses provided they are previously agreed upon. As long as the expenses are incidental to the service itself, then this will be a fairly standard and reasonable sub-clause.

3. 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 won’t cover the scope of the work, or, on the flip-side, may overstep the mark and need to be adjusted accordingly. This sub-clause allows for that adjustment to be made. Make sure your contract lawyer includes this sub-clause, and keep in mind that it will only be enforceable if it is reciprocated i.e. can be adjusted to be made more affordable OR more expensive.

4. 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.

If you want to keep your taxes in order, the above sub-clause is extremely important. Ask your contract lawyer to include this requirement so that you’re not at risk of being audited by the ATO. This sub-clause should feature in every Contractors Agreement.

5. If invoices are unpaid for [30] days, the Contractor has have 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 agreements should have a sub-clause that secures payment of services to the contractor. It should set a time (see above), and should include an acknowledgement of liability from the Principal for all debts, including expenses incurred in pursuing these debts i.e. legal fees and debt recovery costs. A Contractors Agreement would not be complete if your contract lawyer didn’t include the above sub-clause. Keep in mind that the above clause will only be drafted if the contract lawyer is representing the Contractor.

Conclusion

Contractors Agreements detail the terms and conditions of short-term work arrangements between skilled contractors and business owners. It is extremely important that a contract lawyer draft the ‘fees and pricing’ clause so that the contract is legally binding and enforceable in a Court.

For assistance in drafting a Contractors Agreement or if you would like a contract lawyer to review the Contractors Agreement you already have, contact LegalVision on 1300 544 755.

Lachlan McKnight

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