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Engaging contractors in NSW - Details to collect from your contractor

This checklist provides a summary of some of the information and details you should seek from a contractor when engaging their services. Some of these may be legally required, whereas others are a commercial decision for your business.

Verify that the worker is a contractor, not an employee

It is important that you do not mistakenly engage a person as a contractor when they are, in fact, an employee as you may become responsible for things like workers compensation, superannuation, payroll tax and even a contractor’s unpaid income tax. Just because someone has an ABN does not necessarily mean they will be regarded by the regulators as being an independent contractor. A particular risk is if your contractors are simply paid an hourly rate for hours worked rather than upon the achievement of a result.

Checklist of issues 

Public Liability Insurance
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  • This insurance covers business against claims for personal injury to third parties and damage to property owned or controlled by someone else. 
  • Although it is not a mandatory insurance for contractors to hold, in the building and construction industry it is an important risk for businesses to insure against.  
  • HIA strongly recommends that builders make public liability insurance a condition of engagement  and seek evidence of the policies.
  • Ensure the insurance policy has adequate coverage. For example, HIA Trade Contracts require at least $5million for public liability insurance coverage.  
Workers Compensation Insurance (covers the contractors’ employees)
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  • Workers comp is required where the contractor is an incorporated entity (company- Pty Ltd/ Ltd) OR where the contractor has its own workers (e.g. sole trader with employee/s or workers- note: the insurance covers the employee/workers, not the individual who is sole trader) 
  • Where such insurance is required, your subcontractor should provide a subcontractor statement to declare they have the insurance in place and provide evidence (certificate of currency)  

Note: 

  • Contractors that operate as individuals on ABN, paid on a time basis, work exclusively for you, and under your direction are more likely to be seen as a worker than an independent contractor.  
  • If you employ contractors who are deemed to be a worker, you need to ensure that you have workers compensation insurance and you provide an estimate of your annual wages bill to icare.
Personal accident / sickness Insurance / Income protection insurance (covers sole trader contractors)
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  • Because as a general rule self-employed contractors are not eligible for workers compensation, HIA recommends that contractors take out cover for accident and sickness through a private insurer to provide financial compensation while they are unable to work  
  • Be aware that if your contractor is deemed to be an employee, they may still be eligible for workers compensation, even if they hold private insurance coverage. 
 
Contractor Trade Licence
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  • A licence is required:
    • where residential building works are being performed by a tradespersons (works over $5,000);  
    • for all specialist works (electrical, plumbing, gasfitting, air-conditioning, refrigeration), regardless of value.
  • You can only contract to perform, supervise or carry out works as specified by your licence. Penalties may apply if you perform works outside of your licence scope. 

    NSW Fair Trading  sets out the works that can be carried out by each licence category.

  • Ensure that the licence matches the business entity (if the business is a company or partnership, there should be a licence in the name of that business, not the individual’s (director/ partner) name). To verify that the document is compliant, perform online search via:
    • Fair Trading Licence Check or
    • Safework Licence / White Card Check

       

     

     
Safety induction / white card (general construction induction training card)
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  • Anyone performing construction work must have undertaken the general construction induction training and will have been issued with a construction induction card (or white card)  
  • Check contractor holds card and maintain details (as evidence that you’ve met your duty)
SafeWork safety licences (high risk works) – where applicable
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  • If engaging contractors to perform works that are considered high risk, a licence may be required – these works include dogging, rigging and scaffolding; use of cranes; hoists; forklifts; and pressure equipment.
  • Check licences for asbestos removal and demolition (as regulated by the Work Health and Safety Act 2011).
SafeWork Method Statements (SWMS)
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  • Where high risk construction work is being undertaken, a SWMS should be provided and kept till the end of the job
Written contracts
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  • The use of written trade contract is an important part of the contractor risk management process. A written contract sets out key terms such as payment, insurance, processes for variations and rectification of defects.  
  • HIA has trade contracts available here, or through Contracts Online that set out the following detail:  
    • parties details; 
    • site details; 
    • scope of works and contract price (best to have a fixed fee for fixed result, hourly rates should be avoided; materials costs should be shown in a quote);
    • terms and conditions setting out progress stages, payment terms, job completion time, variations procedures (good practice that these are authorised in writing), delays, defects periods, etc.; 
    • terms setting out that contractor takes responsibility for the work and has control over how it’s done (rights to sublet /delegate work)
Warranties
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  • Statutory warranties under the Home Building Act 1989 apply to contractors – these are promises about the work (will be done with due care and skill, will comply with plans, specifications, BCA, etc.) 
  • If there is a breach of the warranty, claim can be made against contractor (as builder, you have contract with the homeowner and would need to rectify the breach - you may seek assistance from the contractor at the time or pursue them for costs if had to remedy the breach)  
 
Payments under Building and Construction Industry Security of Payment Act 1999 (SOPA)
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  • Be aware that contractors may issue a security of payment claim, in which case you need to respond within 10 days. 

To find out more, contact HIA's Workplace Services team

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