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Information to collect from your contractors

The checklist below 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 will be a commercial decision for your business.
Monday, 17th August 2020

Contractor or employee?

You should verify that the worker you are engaging is a contractor, not an employee.

It’s 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
  • This insurance covers businesses 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 seek evidence of and make public liability insurance a condition of engagement.
Workers Compensation Insurance
  • 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).
Personal accident/ sickness Insurance / Income protection insurance
  • 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.
  • To minimise the risk of injured contractors attempting to claim through workers comp, builders can make it a requirement that the contractor maintains this insurance. (Note: the fact that a contractor holds and maintains this form of insurance does not necessarily mean that the contractor would or could not be deemed your worker.)
Contractor licence A licence is required:
  • where residential building works are being performed by a tradespersons (works over $5000)
  • for all specialist works (electrical, plumbing, gasfitting, air- conditioning, refrigeration), regardless of value.
Make sure you check:
  • 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).
  • that the licence has not expired and covers the category of building work / trade that you are engaging the business to perform (penalties can apply to a principal/ builder who engages contactors who are unlicensed or working outside their licence scope).
Safety Induction/ White Card
  • 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).
Safety licences (high-risk works)
  • 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).
Safe Work Method Statements (SWMS)
  • Where high-risk construction work is being undertaken, a SWMS should be provided and kept until the end of the job.
Written contracts
  • 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 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 the contractor takes responsibility for the work and has control over how it’s done (rights to sublet /delegate work).
Warranties
  • Statutory warranties under the Home Building Act 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, can make claim 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).
ABN, GST
  • Ensure all contractors have a valid ABN. If your contractor fails to cite a valid ABN then by law you must withhold 46.5% of the invoice and remit to the ATO.
  • An ABN does not always mean that the contractor is registered for GST. If not registered, the contractor cannot charge GST and should not use a ‘tax’ invoice.
  • Can check ABN and whether registered for GST by checking ABN Lookup.
Payments (SOPA)
  • Laws exist regarding payments to contractors. By law payment terms cannot exceed 30 days.
  • You should always check whether an invoice from a contractor is a payment claim under the security of payment laws (there will usually be a note on the invoice that it is a payment claim under the Building and Construction Industry Security of Payment Act 1999 – but not always. Invoices are taken to be a payment claim under this Act where the works are not residential building works).
  • If a payment claim is issued, there is a formal procedure and strict timeframes in terms of responding to the claim (and giving reasons if not intend paying the amount in the claim).

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

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