Subcontractor & Contractor Agreements [Australia 2025]
Whether you are planning to engage a contractor in your business or you are a contractor yourself looking to engage subcontractors to help you with your workload, you need to be up to speed on the following before you hit go:
Who hires a contractor or subcontractor?
Types of contractor agreements
What contractor agreements must include (for the benefit of both parties)
Do contractors get paid superannuation?
Do subcontractors get paid superannuation?
When a contractor/subcontractor is no longer legally a contractor or subcontractor
And you can also expect answers to some other frequently asked questions (like whether you can hire your spouse as a contractor or subcontractor).
Who hires a contractor?
Small business owners engage contractors for a variety of reasons, but generally speaking, they hire a contractor when they have a need for a skill or services for specific projects for a specific period of time.
Contractors may be known by a variety of titles, including:
VA (Virtual Assistant)
OBM (Online Business Manager)
Freelancer
Consultant
What is a subcontractor?
Subcontractors are people hired by a contractor to assist them in the delivery of a larger project. They do not work for the end client, just for the contractor who has the primary agreement with the client. The contractor has agreements with both the subcontractor and client and the subcontractor and client do not have a contractual relationship at all.
The benefits of hiring contractors & subcontractors
If you are hiring a contractor or subcontractor, it is likely that you have heard that it is a good way to scale up your workforce without having the costs and obligations associated with hiring an employee.
Historically, business owners in Australia hired contractors because it was a way to pay people for the work they did without having the obligations that come with hiring an employee.
While this can be true, read on to learn what you must be aware of to avoid finding yourself facing a call from the Fair Work Commission, the Australian Taxation Office (ATO) or penalties and even backpaying of unpaid entitlements.
The law has changed to ensure that contractors who are more like employees in terms of how they work, are to receive superannuation or be hired as an employee. We’ll unpack this within each of the different types of contractor agreements.
Types of Contractor Agreements
If you’re based in Australia and looking at hiring a contractor or subcontractor overseas or here, these are your core options:
an International Contractor Agreement
a Contractor Agreement / Independent Contractor Agreement
a Subcontractor Agreement
Learn what each type of agreement should include as well as other insights to be aware of when engaging contractors or subcontractors.
International Contractor Agreements
When engaging contractors outside of Australia, an international contractor agreement is used to detail the terms of the engagement, including:
Scope of the work to be undertaken
Agreed rate of pay
Timeframe
Communication methods (e.g. online meetings, project management software)
Record keeping requirements
Intellectual Property ownership
Confidentiality requirements
Procedure in the event of a dispute
Terms relating to the end or termination of the international contractor agreement
Putting an agreement into place helps ensure clarity about the arrangement that you have agreed to. For anyone who has ever had any issues with international contractors in the past, it is their agreement that makes everything clearer. If it includes all the essentials, it will serve you and your contractors well, ensuring you are both “on the same page” about expectations and obligations.
If you’d like to take a look at our template contractor agreement for hiring contractors from overseas, you can find it here.
Contractor Agreement / Independent Contractor Agreements
Having an agreement in place for any employee or contractor is essential to establish the specifics of the working relationship.
When engaging contractors (also known as independent contractors) within Australia, there are similar inclusions however, there are some important factors to be aware of to avoid finding your business accused of “sham contracting”, which carries heavy penalties, not to mention having to backpay your obligations.
The Fair Work Commission is actively on the lookout for situations where a business benefits from engaging a contractor, but for practical purposes, the way in which they work is more in line with what would be considered an employee. This arrangement is known as “sham contracting” and has a lot of flow on effects, making that contractor entitled to superannuation and leave entitlements.
Regardless of whether the incorrect classification of someone as a contractor when the conditions are similar to an employee is deliberate or innocent, the penalties are the same. Amongst other factors, if you require a contractor to be available as required and they cannot set their own hours, then they are likely classified as an employee.
So, to be sure of the correct classification, these are the questions you should ask yourself:
Is the worker serving in the business and performing their work as a representative of my business? AND…
Are they performing the services to further their own business?
If the answer to the first question is yes, then the worker is likely to be considered an employee.
If the answer to the second question is yes, then the worker is likely to be considered a contractor.
Importantly, it doesn’t matter if you (or they) name the working relationship as “contractor” or “independent contractor” in your correspondence or contracts with each other, if the nature of the working relationship is more like that of an employee, then an employee agreement is what is needed. Indeed, even if you have a contractor agreement in place and the ATO thinks it is an employment relationship, that is what will be determined regardless of what you have called the agreement.
If you’d like to see our Contractor Agreement template for contractors working in Australia, go here.
We also have a Contractor Agreement template specifically for engaging NDIS contractors, which can be found here.
FAQs about Contractors
Do contractors get paid superannuation?
A contractor is deemed an employee for superannuation guarantee purposes if they work under a contract that is wholly or principally for their labour. This applies regardless of whether the subcontractor has an ABN or issues an invoice for the work completed.
Can a contractor hire a subcontractor?
Yes, a contractor can hire a subcontractor.
The same rules apply to determine if you are hiring a subcontractor or if, in fact, you should be hiring them as an employee.
Can an independent contractor hire employees?
In Australia, yes, an independent contractor can hire employees (full time, part time, casual or fixed term).
Can I hire my spouse as a contractor?
If your spouse has an ABN and has other clients, then yes, you can hire your spouse as a contractor, instead of an employee. The considerations relating to the risk of “sham contracting” (as detailed above) apply.
Subcontractor Agreements
If you are a Contractor who is looking to engage a subcontractor, then the inclusions are similar to those of a Contractor however there is an important additional factor to consider. Because a subcontractor can come into contact with the end-client, a clause to protect the relationship of the client and the contractor is necessary as are other risk related inclusions such as details of their insurance.
A comprehensive Subcontractor Agreement should include the following:
Scope of the project
Length of the contract/agreement
Pricing
Invoicing requirements
Duties of both parties to the agreement
Protection of intellectual property
Record keeping requirements
Communication requirements
Warranties and indemnities
Details of insurance required
Confidentiality
Non-solicitation clause (to protect against the poaching of clients)
Access to IT systems & more…
When the details of the arrangement are clearly documented, and agreed to by both parties, this is the ideal way to ensure your working relationship is off to a good start (and there are clear pathways about what happens if the relationship needs to end too!).
FAQs about Subcontractors
Do subcontractors get paid superannuation?
In Australia, subcontractors are entitled to be paid superannuation if they are engaged wholly or principally for their labour. This applies regardless of whether the subcontractor has an ABN or issues an invoice for the work completed. Read more about subcontractors above.
Can a sole trader pay a subcontractor?
Yes, a sole trader can pay a subcontractor, provided they follow the conditions that apply to ensuring they are classified as a contractor or subcontractor, and not an employee, as explored above.
If you’d like to see our Subcontractor Agreement template for contractors working in Australia, go here.
If you’re a Virtual Assistant Contractor yourself who is looking for a subcontractor VA agreement template, go to this dedicated page.
We also have an NDIS Agreement that is also suitable for subcontractors, on this page.
To ensure that you have the right agreement in place for any contractors or subcontractors you engage, follow these steps:
Verify that the person you are hiring as a contractor could not be considered an employee; &
Ensure your Agreement includes clauses that cover more than the basics (e.g. non-solicitation, intellectual property ownership, warranties and indemnities etc)
Detailing the specifics of the arrangement, including how to manage disputes if they ever arise, enhances professionalism, reduces the likelihood of miscommunication and saves both you and your contractor stress, time, and money.
Related Articles:
The common mistakes business owners make when they hire contractors (and what to do instead!)
How to hire an Independent Contractor
Common mistakes business owners make when they hire contractors
VA business growth: What to know about engaging other contractors
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