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Small Businesses: Do you have written agreements with your independent contractors?

Oct 20

3 min read

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On just another humid summer day in Perth, I finished my training session at a suburban gym and said goodbye to my gym trainer and owner of the business. She stopped me and said “you are a lawyer right; can you please help me with a query raised by one of my trainers at the gym? This trainer queries why am I contributing to her superannuation fund when she never consented to it.”


In OUR investigative journey I learned that there were no written contractual arrangements in place and, she was contributing to her trainers’ superannuation funds because her accountant advised her to do so.


A significant number of businesses in Australia can be categorised as “small businesses[1], who employ less than 20 people. Yoga studios, fitness centres, gymnasiums, hair salons, massage and beauty centres are examples of small businesses, who engage services of individuals as independent contractors on a “handshake” basis rather than having any formal written arrangements in place.

The drawback of having a “handshake” arrangement is that neither party is aware of his/her rights and obligations. The lack of knowledge often makes small business operators unsettled and apprehensive when confronted with:


(a) queries from such contractors as to their entitlements; or

(b) potential issues that may arise as to confidential information relating to their business when any contractor’s engagement with the business concludes.


Therefore, small businesses must consider preparing and executing written agreements with their independent contractors.


Key issues, which must be addressed in an independent contractor agreement between a small business and an independent contractor, are as follows:


  1. nature of engagement between the parties – is that of a business and an independent contractor and does not constitute a relationship of employment;

  2. nature of the specific task for which he/she has been engaged and the specific hours when he/she is to provide services to the business – for example, a fitness instructor is engaged to conduct fitness classes at a gym on certain days of a week at certain times;

  3. the duration of the agreement – whether it is for a specific period of time or will continue until terminated by either party;

  4. the manner in which the fees will be levied by the independent contractor to the business – will it be on an hourly basis or a fixed fee for completing a task;

  5. the independent contractor’s obligation to periodically provide an invoice to the business for the work completed (with the GST and his/her Australian Business number on it) and, the business’ obligation to pay the amount to the independent contractor;

  6. the independent contractor’s obligation to pay the GST to the Australian Taxation Office;

  7. the independent contractor’s responsibility to contribute monies into his/her superannuation fund, excepting in circumstances where the independent contractor has been engaged to personally perform the task and for their personal labour and skill;

  8. the business is responsible to contribute monies into the independent contractor’s superannuation fund if he/she has been engaged to personally perform the task and a fee in excess of $450 a month from that business;

  9. whose responsibility is it (the business or the independent contractor) to provide the tools and equipment necessary to perform his/her tasks;

  10. the independent contractor’s ineligibility to get any paid leave;

  11. the independent contractor’s responsibility to take out and maintain his/her own insurance policy; and

  12. whether the business intends to impose any restrictions on his/her ability to conduct a competing business activity (restraint of trade) and deal with confidential information (confidentiality obligations) whilst being engaged by the business and after termination of engagement.

After elaborate discussions with her, I prepared independent contractor agreements for her gym business, which she and trainers at her gym executed. She confidently proceeded to respond to the trainer’s query as to why she was contributing monies to her superannuation fund.


Takeaway Message

A Stitch in Time (Saves Nine)


Small businesses operators must consider preparing written agreements with their independent contractors to apprise themselves of their rights and obligations (a stitch in time) and minimise future legal costs in defending potential claims by independent contractors (saves nine).

Please note that any information included in this article is general information only and does not constitute legal advice. Please contact us to discuss your particular circumstances.

[1] Various regulatory bodies like Australian Securities and Investment Commission (ASIC), Australian Taxation Office (ATO) in Australia use a different definition for the term “small business”. A common understanding between the regulatory bodies is that businesses who employ less than 20 persons are classified as small businesses.

Oct 20

3 min read

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