How Can Real Estate Agents Engage Contractors?

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Table of Contents

• What is the Difference Between an Employee and a Contractor?
• What Should I Do When I Bring on a New Contractor?
• Can a Real Estate Business Use Conjunction Arrangements?
• Key Takeaways

When operating a real estate business, you may need to engage additional agents or service providers. These could be contractors or employees. In Australia, it is essential to understand that contractors and employees will have different legal and tax implications for your business. As a real estate business, there may be additional implications where your contractors enter a conjunction arrangement to share the commission. This article will outline a number of the legal considerations when bringing on a new contractor.

What is the Difference Between an Employee and a Contractor?

Both employees and contractors provide services. However, contractors are typically companies or individuals set up as sole traders, whereas employees are typically individuals.

An independent contractor will usually run their own business. Generally, independent contractor relationships likely exist where:

• a business engages a contractor for a specific project or task;
• the contractor will be independent and autonomous and have a high level of control regarding their work;
• the contractor will decide what hours of work are necessary to complete the project or specific tasks;
• the contractor pays their own income tax and goods and services tax (GST) to the Australian Taxation Office (ATO); and
• the contractor does not have paid leave entitlements, including sick leave or annual leave.

In comparison, an employee relationship likely exists where:

• an employee has a formal, ongoing, and typically long-term relationship with the employer;
• the employer has control over the employee’s work, including when, where, how the work is performed and what equipment is used;
• the employer will be responsible for payment of the employee’s wages and superannuation; and
• the employee will have paid leave entitlements.

What Should I Do When I Bring on a New Contractor?

Once you have determined that you need a contractor for your real estate business, you should enter a contractor agreement. The contractor agreement should include:

• details on the services the contractor will provide and when, including any essential deliverables, service levels or other key performance indicators for the work;
• the fees for the services and the timeframe for payment;
• insurance requirements for the contractor (and any of their employees or subcontractors if they are a company); and 
• any restraint of trade on the contractor.

Can a Real Estate Business Use Conjunction Arrangements?

If you bring on an agent as a contractor for the sale of a specific property, you may enter a conjunction arrangement. Real estate businesses or agents use conjunction arrangements when they share a commission on the sale of a property. There are two broad types of internal and external conjunction arrangements.

Internal conjunction arrangements can have tax implications for the agent providing services to the real estate business. Additionally, any commission paid may be subject to payroll taxes. As a matter of best practice, you should keep a record of:

• the contractor agreement with the agent;
• the agency agreement for the property, listing your real estate business and the agent;
• how the agent was paid, including any fees and commission, and the hours the agent worked; and
• evidence for any conjunction exemption claimed.

Key Takeaways

When running your real estate business, you will work with both contractors and employees. As with any business decision, it is essential to seek legal advice to determine what is most appropriate for your business when bringing on a contractor, given the penalties for sham contracting. 

If you require assistance with any real estate business queries, our experienced real estate lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.