Why is it important to have a written agreement with your contractors?
February 21, 2020
Having a written agreement with your contractors is very important and can provide clarity and certainty in a number of ways, including:
1. Rights and obligations
Knowing that your written agreement provides a builder with, for example the right to compel a contractor to finish or fix work, and a contractor with, for example the right to demand payment, can help in the resolution of any conflict that might arise.
HIA sells simple written contracts that can be used by builders and contractors called the Project Trade and Period Trade contracts. They are available in printed and online formats.
The contracts also cover other significant issues such as warranties, insurance, health and safety, copyright, and termination of the contract.
2. The individual is an independent contractor and not an employee
Having a written contract can help demonstrate that the parties intended and actually had a contractor relationship and not an employment relationship.
While different laws have different rules about when a contractor should be treated as an employee there are five factors which can be addressed by using a written contract to indicate a contractor relationship:
- Is the contractor paid a fixed price for results and required to fix defective or incomplete work?
- Is the contractor using their own tools and/or materials and not just supplying their labour?
- Is the contractor able to contract or employ others to do the work and not expected to carry out the work personally?
- Does the contractor decide how to perform the work and does not follow directions of the builder?
- Does the contractor have the freedom to choose to accept work from the builder?
If the answer to all or most of these questions is “No” then there is a high possibility that the contractor is actually an employee.
If the relationship between the contractor and the builder resembles an employment relationship this may result in a Court, tribunal or regulator deciding that the contractor is actually an employee. This can have major consequences for the tax, insurance, portable long service leave and other legal responsibilities of the builder.
The HIA Project Trade and Period Trade contracts address these five factors by:
- Requiring a fixed price (subject to variations).
- Requiring the contractor to fix defective works.
- Confirming that the contractor may sub-contract or employ others to carry out the works.
- Requiring that the contractor supply everything necessary to carry out the work.
- Defines the trade work to be completed and provides that the contractor can decide which work they will undertake.
If these contracts are used properly, including that the contractor signs one before each job, then both the builder and contractor have a better chance of a successful business relationship and one that is accepted as an independent contractor arrangement as intended.
If you have any questions please contact a HIA Workplace Adviser on 1300 650 620.