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Print Posted by SMEA Posted on 09/10/2017 in Hiring

Independent Contractors and your business

Independent Contractors and your business

As your business grows you will face the need to either hire additional staff, or employee an independent contractor. The decisions as to which will be determined by the requirements you need the person to fill, and the position of your business.

The first thing you will need to understand is the difference between an employee and a contractor. Some of the differences noted by the Fairwork Ombudsman include:

Employees:
Contractors:
  • Work directed by the employer
  • Work standard or defined hours
  • Regular salary with income tax deducted from salary
  • Have paid leave
  • Work tools are provided by employer
  • Control their own work
  • Work their own hours
  • Usually engaged in a specific task or project
  • Pay their own GST
  • Provide their own work tools

Employees, in the traditional sense, work for your business, have job descriptions and the ongoing expectation of continued employment. Independent contractors on the other hand, work for themselves, may move from business to business, and assume the responsibilities of their employment.

The benefit of hiring an independent contractor can be seen in the simple terms of time and money. Costing the business less and hiring for a specific task or project. That way the business can benefit from the contractors’ skills and work concentrated on a specific area. It also helps small business access skills they may not have on staff, but only require for a specific period.

When hiring an independent contractor there are important issues you need to understand and plan for. Business.gov.au outlines essential information for you to follow when hiring an independent contractor. A must read for any business owner looking to engage in this way. One of the key things you will need between your business and the independent contractor, is a Contracting Agreement.

The contracting agreement should clearly outline the details of the contract, the period, and the services expected of the contractor. Payment details should be clearly outlined, including whether they will be paid based on milestones or on a time\hours based basis. Also what will be expected of them in terms of deliverables.

In short, you need to be very clear, and have it documented, as to what the contractor is being contracted for, what is expected of them, how and when they will be paid. What also needs to be clearly detailed is how disputes will be handled and how the agreement will be dissolved.

Often disputes arise over misaligned expectations. Both parties need to be clear on what the contractor is being engaged for, and on how they deliver it. That is why it is essential that you have a very clear contracting agreement. That will help to ensure that both parties are very clear on their responsibilities under the contract.

This is especially crucial when working on a time-sensitive project. Where the timeline on deliverables from the contractor will affect the overall success of the project. As the contractor determines their own hours, and may be working on other projects as well as yours, it is critical for your business to clearly define the requirements under which the contractor is being engaged.

Hiring a contractor is a great way to meet a short term requirement. It can give you access to additional skills and resources that your business currently lacks and that are needed to meet the demands of a project. It can also minimise the financial burden of hiring a new employee. But what is essential to understand is that you must fully understand the vagaries of hiring a contractor, and be very clear in your understanding of the requirements of the contract and your expectations of the role they will be playing.

Use the various government resources available to research how to engage with an independent contractor. Understanding and protecting yourself upfront, being clear on the engagement will help to make the process a successful one. The ultimate goal being, of course, growing your business in the most cost effective way possible.

The SME Association of Australia provides a comprehensive platform for the collaboration of businesses, organisations, associations, schools, higher education bodies and government to ensure SMEs are equipped to connect, grow and prosper. Find out more at http://www.smea.org.au/. Join our SME Community, follow us on Twitter | Facebook | LinkedIn and subscribe to our podcast SME Radio

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