As a business owner, you may subcontract work when you lack the resources or expertise to complete a specific task or project. Usually, you can arrange this through a contractor agreement. A contractor agreement is an agreement for services between a business and a contractor. This article will outline the key terms you should be aware of and include in your contractor agreement.
Contractor vs. Employee
As a business owner, your obligations (including taxation and superannuation) will differ depending on whether your worker is an employee or contractor. Disguising your employment relationship as an independent contractor agreement may result in a ‘sham contract’. Doing so risks facing penalties under the Fair Work Act.
Right to Subcontract
In some cases, you might engage a contractor to complete part of the work you have already been contracted for by a third party. In these cases, you must first check the terms of your existing agreement to ensure that you actually have the right to subcontract. If you have the right to subcontract, be aware that you will generally be held accountable for the actions of the contractor under the client agreement. You can mitigate this by including obligations or ‘warranties’ on the contractor.
For example, you can include that the contractor will:
- deliver the services with due care, skill and diligence;
- maintain specific licenses or qualifications required for the engagement;
- comply with applicable laws specific to the engagement;
- perform the services without delay; and
- reperform or resupply any services that are incomplete following the contractor agreement.
The contractor risks being liable for a breach of contract if they do not comply with their warranties.
You can also include indemnities in your contractor agreement to provide extra protection for your business.
Continue reading this article below the formDetails to Subcontract
Your contractor agreement should clearly outline details such as:
- the period of the agreement (ie, on an ongoing or one-off basis);
- the hours the contractor is required to work or any milestones they must satisfy;
- payment, either on a fixed-fee or hourly basis, and the payment terms; and
- the services that the contractor is performing for you.
You should aim to be as specific as possible about the services you are engaging the contractor for. This may help avoid a lengthy dispute that can often arise from unmet expectations.
Period of the Arrangement
Your contractor agreement should include the period you are engaging the contract for. Suppose you require one-off assistance completing a specific project. Accordingly, you should include a clear start and end date in the agreement.
If your business has longer-term needs, but you are unsure exactly when or for how long you will need the contractor’s help, you can enter into an ongoing agreement that operates until terminated. During the term of the agreement, you can request work from the contractor. If they accept the work request, this forms an ‘order’. The order will outline the specific details of the work the contractor will complete. It will be governed by the broader terms of the contractor agreement. If more work arises in the future, all you need to do is issue another work request.
Payment
Your contractor agreement should specify how you will make payment.
If you are paying the contractor on a fixed fee basis, it is important to be as specific as possible about the work they must perform and any other performance indicators or milestones they must meet. If you are engaging the contractor on an hourly basis, you can require them to use a reputable timekeeping service to record their time.
Non-Compete Obligations
These obligations can often be accompanied by restraint obligations such as a geographical area and time period for which the restraint applies. You can include a non-compete obligation in your contractor agreement so long as it is reasonably necessary to protect the legitimate interests of your business; otherwise, the obligations may be unenforceable.
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Key Takeaways
If you want to engage a contractor for your business, it is important to draft a strong contractor agreement. This will help you and the contractor clearly understand your obligations.
If you need help with a contracting agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A contractor is distinct from an employee. An independent contractor generally runs their own business and is usually engaged for a specific project.
Businesses may subcontract work when they lack the expertise or resources to carry out a project.
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