How Do Contractors Get Paid?

Sometimes, hiring a full-time employee is simply not practical. Maybe you only need a certain specialist for a limited project or maybe you can’t afford another salaried worker but require a more unique skill set for a job. As such, freelance contracting is becoming an increasingly popular way of working in Australia, particularly in the wake of the pandemic.

Contracting offers flexibility, independence, and greater control over work-life balance. However, one of the most important considerations for contractors is how they will get paid for their services. Here, we’ll explore the different methods of payment for contractors and the regulations surrounding these payments in Australia, as well how businesses should go about hiring contractors.

Hourly or daily rates

This is a simple method where the contractor agrees to a set rate for each hour or day they work. The client or employer will then pay the contractor based on the number of hours or days worked. This method is particularly useful for short-term projects for small businesses or where the amount of work required is not easily defined.

Fixed price contracts

Fixed price contracts involve agreeing on a specific price for a particular project or task. This method is often used for longer-term projects or where the scope of work is clearly defined. It provides the contractor with a clear understanding of what they will be paid for, allowing them to manage their time and resources accordingly.

Time and materials contracts

These are a hybrid of the hourly and fixed-price methods. In this arrangement, the contractor agrees to a fixed hourly or daily rate, but the total cost of the project is dependent on the materials and resources used. This method is commonly used in industries where the cost of materials or supplies can vary significantly, such as construction or manufacturing.

Retainer Agreements

Retainer agreements are a more long-term way of working, where the contractor is paid a set amount of money each month to provide ongoing services to the client. This method is often used in industries such as marketing or consulting, where the contractor provides ongoing support or advice.

Regulations surrounding contractor payments

In Australia, the Fair Work Act 2009 sets out the minimum wage and working conditions for employees, but it does not apply to independent contractors and outsourced workers. Instead, the Fair Work Ombudsman provides guidance on the minimum rates of pay and working conditions for contractors. It is important for both contractors and employers to understand these regulations to ensure they are complying with the law.

Payroll tax

In addition to minimum wage requirements, contractors and employers must also be aware of payroll tax obligations. Payroll tax is a state-based tax that is payable when an employer pays wages or salaries above a certain threshold. Contractors who earn above this taxable payments threshold may be required to register for payroll tax and pay the relevant tax to the state government.

Hiring a freelance contractor

Hiring a freelance contractor can be a great way to get the skills and expertise you need without having to commit to a full-time employee. According to the Australian Bureau of Statistics, one million Australians work as independent contractors, so you should be spoilt for choice. But with so many freelancers out there, how do you know where to start?

Define your needs 

The first step is to clearly define what you need from a freelancer. What skills and experience are you looking for? What kind of project do you need help with? Once you know what you need, you can start to narrow down your search.

Research

There are several websites and online marketplaces where you can find freelancers. Do some research to find freelancers who have the skills and experience you need. Read reviews and testimonials to get an idea of what other clients have said about their work.

Interview

Once you've found a few potential freelancers, schedule interviews with them. This will give you a chance to ask questions and get to know them better. It's also a good opportunity to see if they have a good understanding of your needs and expectations.

Check references

Be sure to check the references of any potential freelancers. This will give you a good idea of their work ethic and quality of work.

Get everything in writing

Once you've found a freelancer that you're happy with, be sure to get everything in writing. This includes the scope of work, the timeline, the payment terms and any other important details.

Be clear about your expectations

When you're interviewing potential freelancers, be sure to be clear about your expectations for the project. What are the deliverables? What is the timeline? What is the budget? The clearer you are about your expectations, the better the freelancer will be able to understand what you need and deliver the results you're looking for.

Be flexible

Things don't always go according to plan, so it's important to be flexible when working with a freelancer. Be prepared to make changes to the scope of work or the timeline as needed.

Communicate regularly 

One of the keys to a successful working relationship with a freelancer is communication. Be sure to communicate regularly with the freelancer, both during the project and after it's completed. This will help to ensure that everyone is on the same page and that the project is completed to your satisfaction.

Pay on time 

It's important to pay your freelancers on time, just as you would pay any other employee. This will help to build trust and ensure that you have a good working relationship with the freelancer in the future.

How can we help?

Hiring a freelance contractor can be a great way to get the help you need without having to commit to a full-time employee.

To get the most out of the situation, however, it’s essential for both contractors and employers to understand the regulations surrounding contractor payments in Australia, including minimum wage requirements and payroll tax obligations. By doing so, contractors can ensure they are being paid fairly and legally for their work, and employers can avoid any potential legal issues.

Businesses and contractors alike must also have digital payment solutions in place to ensure efficient and reliable payments. Bank payments are always going to be preferable here as cards are not only expensive but often require a card machine.

If the contractor or business uses a digital payment service like GoCardless, however, they can send a payment request link via invoice, email, or text that can be confirmed in just a few clicks. It’s a simple, elegant, way for contractors to request payment directly and it’s easy for businesses to authorise securely.