Independent Contractors

Understanding Independent Contractors

  • An independent contractor is a person or entity contracted to perform work for—or provide services to—another entity as a nonemployee.
  • As such, they provide goods or services under terms specified in a contract or within a verbal agreement.
  • Unlike employees, independent contractors do not work regularly for an employer but work as and when they are required.
  • Independent contractors are usually paid on a freelance basis.
  • Independent contractors have a level of control over how they complete their work but are also responsible for how that work is done, and the results it produces.
  • They have the ability to decide when, where, and how they will work.
  • They are not eligible for the benefits that an employee might enjoy, such as paid personal leave or superannuation from the hirer.
  • Additionally, they are responsible for their own insurance and tax obligations.

Implications for the Business

  • Businesses may prefer to hire independent contractors because of the flexibility it offers, as well as less stringent legal and financial obligations compared to hiring employees.
  • By hiring independent contractors, businesses do not have to pay benefits, sick leave, or contribute to pensions.
  • However, it is crucial that businesses clearly define and distinguish between employees and independent contractors, as misclassification can lead to legal troubles and fines.

Independent Contractors and Vicarious Liability

  • Generally, a business is not held responsible for the actions of an independent contractor in the same way it would be for an employee.
  • If a contractor’s actions result in a legal dispute, typically the contractor is held responsible, not the business.
  • However, exceptions may apply if the contractor is doing something at the direction of the employer, or if their job involves an inherent risk of harm.

Managing Contractor Relationships

  • Businesses must manage relationships with independent contractors carefully, including clear terms in contracts and understanding critical distinctions between contractors and employees.
  • Regular review of arrangements can help ensure they are still suitable and meet the business’s changing needs and circumstances.
  • Managing these relationships well reduces legal risks and helps ensure productive, beneficial interactions between the independent contractor and the business.