In today’s economy, not every person who helps you meet your business needs is necessarily a full-time employee. In fact, contractor, consultants and freelancers are becoming commonplace for many companies.

Below the advantages and disadvantages of hiring a contractor are discussed. You can decide if employing a contractor is appropriate for you business.

Advantages of Hiring a Contractor:

Here are some of the key reasons your business would hire a contractor.

Reducing costs: Contractors are often paid a higher hourly rate than full-time employees, however unlike full-time employees contractors don’t require employer benefits such as paid sick and holiday leave, superannuation, office space, equipment or education costs.

Flexibility: Contractors often have a flexible schedule and don’t need an office space. This flexibility can be useful to your business and there is also no long-term commitment to contractors. Contractors are usually experts in their given field, this can reduce resources required to train employees and lower supervision costs.

Lowering the risk of legal action: Full-time employees are protected under Commonwealth and State laws and regulations and have the ability to take legal action against your business, should they feel their employee needs are not being met. This is not the case for contractors who are not covered under these regulations.

Identifying your business needs and the savings opportunities with contractors is a worthwhile discussion among management. It’s possible, too, that hiring a contractor could open new doors to other opportunities, or even offering a full-time opportunity to a good candidate in the future.

Disadvantages of Hiring a Contractor:

Hiring a contractor for your business can also have some downfalls, as discussed above they demand higher rates as they consider themselves self employed and are excluded from employee benefits.

Businesses must also walk a careful line so an agreement or contract with an contractor doesn’t turn into the need for government-required benefits.

Lets take a look at the setbacks:

Lack of control: Contractors are essentially self-employed they work on their own time and may work away from the office. Unlike your employees who can be monitored, contractors have a certain freedom and are largely independent prohibiting close supervision. Contractors may also have a few modes of employment hence at times your business needs may not take priority.

Lack of continuity: Contractor regularly come and go. Unlike full-time employees contractors may be used on a short-term contract, longer or larger projects they have run the risk of being abandoned if one of their clients takes precedence over your work. If your business requires someone for a long term relationship or project it may be best to employ a full-time employee.

Higher costs: It is important to discuss salary or payment before an agreement is signed with a contractor. As mentioned above that contractors do not require the same benefits and leave as full-time employees as a result contractors cost more to your business.

Ownership: As contractors are not employed in a full-time capacity the work they produce may have copyright issues and not belong to your business. For this reason it is important to remember the golde rule: put it in writing. to put into an agreement that the work they create for you belongs to your business.For example, let’s say you need some work done on your IT systems or software and you ask a contractor to help. If you do not have a clear assignment in writing of the copyright in the work that the contractor does for you, you will not end up owning the copyright in their work even though you paid for it. This is because the Copyright Act requires all assignments of copyright to be in writing.

As stated above, be careful that the relationship with your contractor is of an employer-contractor nature. If the government audits your business and it is found that the relationship with your contactor is the same as your full-time employees the contractor may be entitled to benefits, workers compensation and other regulations or protective rights.

What to include in your contractor agreement:

Now that your business has decided to hire a contractor it is important to decide what will go into the agreement and to answer these questions. What will your contactor be required to do? What are your expectations of the agreement? What type of productivity is expected?

Oral agreements are open to confusion it is therefore essential that a written agreement be made defining the relationship clearly and the expectations from parties involved:

Listed below are some important aspects of your future contractor relationship to consider in the written agreement.

  • Description of the services required;
  • Description of compensation or pay for the work required (this can be a fixed fee or monetary compensation based on timeframes) and a payment schedule;
  • Make it clear who the contractor will answer to;
  • Description of who will pay for expenses;
  • Description of the term of the agreement;
  • Make it clear that the benefits provided to full-time employees are not extended to independent contractors;
  • Description of how disputes within the business are resolved;
  • Statement or verification that the contractor carries liability insurance;
  • Description of circumstances under which you or the contractor can terminate the agreement;
  • The importance of non-disclosure agreements.

A non-disclosure agreement ensures information disclosed between both parties remains confidential. It is important to use this type of agreement in the early stages of the hiring process so you can talk freely with prospective contractors.

Finally, ensure both parties’ expectations are clearly put in writing in the agreement. It is important to avoid misunderstandings so your business can benefit from hiring an independent contractor.

If you’re ready to hire a contractor, you can easily create a Contractor Agreement through LawPath.

“Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.”

Dominic Woolrych

Dominic is the CEO of LawPath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.