How to hire an independent contractor: The essential ingredient
Understanding how to hire an independent contractor is as important as finding the right contractor to hire.
Bringing on an independent contractor or subcontractor can be a great way to accomplish more without the obligations of an employee. It can be very exciting to hire a contractor or subcontractor. It is often an indicator that your business is growing and the load can be shared. You will be able to refocus on the high-value activities and move your business forward. However in the midst of this positive energy, make sure you remember that it is a business arrangement, and you need a quality agreement to protect your business and maximise the opportunity for this engagement to be a great experience.
Independent Contractor Agreements for use with contractors both in Australia and overseas can be found here:
There are pros and cons to contractor arrangements, just like any other type of business agreement. You not only need someone with the right skills, but you want them to be a good fit for your company as well. Even if they work remotely (or away from your office in another location), it is likely they are still going to have some contact with other people in your business. If your contractor does not deliver in the way you hoped, oversteps the mark with clients or discloses information they shouldn’t, you could face some serious problems. Fortunately, a formal contractor’s agreement can provide you with a way to effectively manage and avoid these issues.
Here is what you need to know about hiring an independent contractor and what should be included in an independent contractor agreement.
Detail all commercial aspects
The price you are paying, the scope of the work, and the specifics of the parties and the contractor’s role should all be spelled out in the contractor agreement. A key element for how to hire an independent contractor successfully is to ensure you protect yourself and your business as much as possible. There will have to be protections in the agreement for the contractor as well, to ensure that it works for them too.
Anything that is not spelled out in the agreement could come back to be a problem for you or your contractor at a later date. That is why the information that we put in an independent contractor agreement may be more detailed than you had imagined. If you are not clear and precise with the details of what you expect, such as the transfer of copyright of any works created, that can create legal issues for you down the track.
Naturally, those are the kinds of issues you are seeking to avoid when you hire an independent contractor, however, transfer of copyright ownership is not automatic just because you have hired them to complete a project and it is important to dig into the details.
The responsibilities of each of the parties
The responsibilities of each party to the agreement must be clear. If they are not spelled out properly, the contractor can claim that they did not know or understand that they were supposed to complete something specific. They may also go beyond the scope of duties or overstep boundaries if they feel that they are responsible for a particular area or allowed to expand their efforts beyond what was originally requested of them. With a contractor this can always be tricky if they then take that step to try to work directly with your client and, believe me, we have seen a bit of that here at The Remote Expert.
Contractors need to know that they will receive payment as agreed, as long as they complete their side of the agreement. That is another reason why the detailing of the responsibilities of each party to the agreement is so important. Your contractor has responsibilities to complete projects for your business, but you and your business also have responsibilities to that contractor. It is a two-way street, and a good contractor agreement ensures that everyone who is a party to that agreement understands their rights and obligations.
Before you hire a contractor, you need to make sure you have an agreement in place that makes you feel confident. Then you can keep control - present that agreement to them, and they can choose to work with you or not. It will be up to you whether you agree to any modifications requested by a contractor, and if requested amendments are far-reaching, you should always check in with your lawyer before agreeing to them.
Don’t blur the relationship
Contractors are not employees. A lot of people forget that, and they expect them to work in the same ways as an employee might, such as being on call at all times and doing whatever you ask. But, if you treat your contractors like employees, they could end up entitled to protections and benefits you may not have intended to give them under the Fair Work Act and you could end up in trouble with the Australian Tax Office (ATO). It is very important that you understand how to hire an independent contractor correctly. Get it wrong and you potentially face the need to back pay payroll and superannuation.
The ATO cracks down on this, something they call “sham contracting,” because they know that sometimes businesses use that to get out of paying an employee and giving them rights such as annual leave, personal leave and long service leave under the employment contract. There is an ATO test that can help you determine what type of working relationship you are looking for and whether that constitutes a contractor relationship or an employee relationship. We suggest this is the first place you start when you are looking to make a new hire and go from there.
Being clear about what should be included in an independent contractor agreement is extremely important for your own security, and the security of your company as well. If you hire an independent contractor, make sure your contract clearly spells out the fact that there is no employee relationship.
Carefully consider IP protection and confidentiality
Confidentiality and the protection of your company's intellectual property (IP) are another two areas you need to be very clear about. Because the contractor is not an employee, they are not bound by the same kinds of rules your employees are. As a result, your contractor agreement will need to include provisions about ownership of intellectual property or project property developed during the contract. This can be tricky where the contractor creates their own IP for their own business while they work with you. What happens to that IP when your relationship with the contractor ends? Is that intellectual property yours, or theirs? These are questions you need to answer before you hire an independent contractor, so everyone who is a party to the agreement knows where they stand. For example, you hire an independent contractor to help you develop onboarding processes for clients and checklists. Who owns the processes and checklists? Can your contractor use them as a base to use for other clients? It is really important to look at the purpose you are hiring the contractor for in those terms.
Confidentiality of your client information and insights must also be addressed in addition to any information about how you operate your business.
Solicitation of clients
In most cases, an independent contractor is not allowed to solicit clients from a business the contractor is working with. But, if you want that to be the case, you need that to be in the agreement as well, this is known as a non-solicitation clause and it needs to be spelled out in writing.
You may also want to think about how long after the contractor stops working with you it is reasonable to ask that they not contact your clients. In many cases, that time frame is two to three years, but it could be longer or shorter depending on what you are comfortable with at your company and whether the contractor will actually have any, While a lot of people are fundamentally good people and won’t engage in this behaviour, this is not always the case and it is those unscrupulous types you need to worry about. It is easy to find people's information online today, so assuming that clients and contractors will not find one another's contact information is not reasonable. Especially when clients reach out to the contractor on their own, you need to have clear guidelines in place in your contract that tells contractors what they can and cannot do in the interactions they have with your clients and more broadly your team members or suppliers in some cases too.
Peace of mind
The essential ingredient for how to hire an independent contractor successfully while simultaneously protecting your business is a legally binding independent contractor’s agreement. Often working relationships sour when there is confusion or misunderstandings about what one party expects from the other.
Having an agreement in place provides your business and the contractor with a binding agreement to follow, so that misunderstandings about expectations during the term of the contract, are less likely. When you have an agreement that details both parties' obligations, this creates clearer terms of engagement and goes a long way in ensuring a positive experience with your contractors so you can focus on other areas of your business.
Related Articles: The common mistakes business owners make when they hire contractors (and what to do instead!)
If you are in need of an independent contractor agreement, our Contractor Agreement Template and our International Contractor Agreement Template provide an effective way to detail the key aspects of your contractor relationship. If you are unsure if these templates will suit or you wish to tailor a contractor agreement specifically to the unique needs of your business, reach out to us and we can identify whether the template will be sufficient or if we will need to tailor it for you.