TL;DR: An independent contractor agreement records the work, the fees, and the terms of an engagement with a contractor. In Australia, though, the agreement does not decide whether someone is a contractor. Since 26 August 2024, most companies must look at how the relationship works in practice, and calling an employee a contractor can be sham contracting.
Key takeaways
- Since 26 August 2024, most companies use the whole of relationship test to decide if a worker is a contractor.
- Having an ABN or issuing invoices does not, on its own, make someone a contractor.
- Sham contracting can cost a larger business up to $546,000 for each contravention, according to the Fair Work Ombudsman.
- A contractor paid mainly for their labour is an employee for super guarantee purposes, according to the ATO.
- Contractors earning under $190,100 can ask the Fair Work Commission to review unfair contract terms.
What is in these contractor agreement templates?
The download holds three sample independent contractor agreements. One suits a contractor who is a sole trader, and another suits a contractor trading through a Pty Ltd company. The third is a 1-page agreement for simpler engagements. Agreements like these usually record the services, both parties’ details, the billing terms, the contract period, and intellectual property.
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How to use the templates
Start by confirming the worker really is a contractor, using the test that applies to your business. Then pick the agreement that matches how the contractor trades. Describe the result you are paying for rather than how to do the work. Finally, have a lawyer review any changes before you sign.
What is an independent contractor agreement?
An independent contractor agreement is a contract for services between a business and a person or company that provides those services. It sets out the work or result, the fees, payment timing, intellectual property, confidentiality, insurance, and how either party can end it. It is also called a consulting, service, freelance, or subcontractor agreement.
The key difference from an employment contract is the relationship it describes. An employee works under the direction of the business and gets entitlements such as paid leave and minimum wages. A contractor runs their own business, usually negotiates their own fees, and can often work for several clients at once.
According to business.gov.au, a short and simple contract can be enough for some jobs. Even then, it should state the work or result, how much and when the hirer will pay, and when the work is finished. It should also say how the parties will handle disputes.
How do you know if a worker is an employee or a contractor?
Since 26 August 2024, a constitutionally covered business uses the whole of relationship test. It looks at the real substance, practical reality, and true nature of the relationship, including how the contract works in practice. So the label in the agreement matters less than control, financial risk, tools, delegation, hours, and continuing work.
The test depends on the type of business. According to the Fair Work Ombudsman, a business with “Pty Ltd” or “Ltd” in its name is usually constitutionally covered. By contrast, sole traders, partnerships, and some other entities in several states use the older start of relationship test. That test focuses on what the parties agreed in the contract.
Which factors point to a contractor?
The Fair Work Ombudsman lists six factors, and no single one decides the answer. A contractor usually controls how, when, and where they work. They carry the financial risk of each job, supply their own tools, and can delegate or subcontract. They are usually engaged for a specific task rather than with an expectation of ongoing work.
Consider a worker who wears your uniform, fills out timesheets, and follows a supervisor’s instructions on how to do the job. That person looks like an employee, even with an ABN and a monthly invoice. In fact, the Fair Work Ombudsman says an ABN or invoices do not automatically make someone a contractor.
Can a high earner opt out of the test?
A worker who earns more than the contractor high income threshold can opt out of the whole of relationship test. The threshold is $190,100 from 1 July 2026. The worker gives written notice, and the start of relationship test then applies. A business can tell an eligible worker about this in writing, and the worker then has 21 days.
What is sham contracting, and what are the penalties?
Sham contracting is when a business tells a worker they are a contractor when they are really an employee. It is illegal unless the business can prove it reasonably believed the worker was a contractor. It is also illegal to dismiss an employee, or threaten to, so you can re-engage them as a contractor.
The defence got harder on 27 February 2024. Before then, a business could defend a claim by showing it was not reckless. Now, according to the Fair Work Ombudsman, it must prove it reasonably believed the worker was a contractor when it made the representation.
The penalties are significant. According to the Fair Work Ombudsman, the maximum penalty for each contravention is $21,840 for an individual. For a business with fewer than 15 employees, it is $109,200. For a larger business, it rises to $546,000.
Suppose you engage someone for 12 months to cover parental leave, on the same hours and tasks as the absent employee. Asking that person for an ABN and invoices does not make them a contractor. A fixed term employment contract is the safer choice for that kind of role.
What should an independent contractor agreement include?
A contractor agreement should include both parties’ legal names, addresses, and ABNs, a statement that the worker is a genuine contractor, and a clear description of the work or result. It should then cover fees, invoicing, intellectual property, confidentiality, liability, insurance, subcontracting, restraints, defects, disputes, variations, and how the contract can end.
Several of those clauses need care. Under intellectual property laws, a contractor automatically owns the intellectual property they create, according to business.gov.au. So if your business needs to own the work, the contract must say so. Similarly, a court will not enforce a restraint of trade clause that is unreasonable.
Describe the result rather than the method. Business.gov.au notes that contracts generally don’t say how to do the work, because that can indicate employment. “Clean the offices each Saturday by 6 pm” describes a result. Adding which products to use and which floor to clean first describes how to do it.
The statement of genuine contractor status helps, but only so far. A court may consider it if the relationship is disputed. However, under the whole of relationship test, how the work happens in practice still carries the most weight. The Australian HR compliance software guide covers how organisations keep these records straight.
Do you have to pay super for an independent contractor?
You must pay super for an independent contractor if you pay them mainly for their labour, according to the ATO. That applies when more than half the contract value is for their labour, they are paid for their skills rather than a result, and they must do the work personally. Holding an ABN does not change this.
The ATO gives a clear example of each side. A freelance assistant who answers phones for 15 hours a week, personally, and invoices weekly is an employee for super. A painting business paid to paint a shop is not, even if one painter does the work. That is because the business was paid to achieve a result.
So the contractor’s structure matters for super. If you contract with a company, trust, or partnership, you do not have to pay super for the person it employs to do the work. Where super is due, you must offer the contractor a choice of fund within 28 days of their start date. From 1 July 2026, contributions are based on the contractor’s qualifying earnings for their labour.
Can a contractor challenge unfair terms in the agreement?
A contractor can ask the Fair Work Commission to review unfair terms in a services contract made on or after 26 August 2024. Their earnings must be under the contractor high income threshold, which is $190,100 from 1 July 2026. The Commission can set aside or change terms that relate to pay, leave, and similar workplace matters.
The Commission weighs several things when deciding if a term is unfair. They include the parties’ bargaining power, any significant imbalance in rights, and whether the term protects a legitimate interest. It can also compare the contractor’s pay with what employees doing similar work would receive.
Contractors above the threshold have a different path. According to the Fair Work Ombudsman, they can apply to a court for a review under the Independent Contractors Act 2006 if they think the contract is harsh or unfair. As a result, a one-sided template carries risk at every income level.
When is a contractor agreement template not enough?
A contractor agreement template stops being enough when you engage many contractors, or when their roles start to look like jobs. At that point the risk is not the wording but the practice: contractors drifting into rosters, supervision, and ongoing work. Reviewing each engagement against the test, at least yearly, is what keeps the template accurate.
For a business engaging a handful of specialists, a reviewed template and a calendar reminder is genuinely sufficient. However, a larger workforce that mixes employees and contractors needs one place to see who is engaged on what basis. Which HR processes to automate is a useful starting point.
Worknice is one option for Australian organisations of 200 to 5,000 employees that want contractors and employees in one HR system, with the same onboarding paperwork and forms. It does not decide whether someone is a contractor, so that still needs advice. Equally, a business that only engages a few contractors may not need an HR system at all.
What should you review each year?
Check whether each contractor still controls how they work, still carries financial risk, and still works on defined tasks. Then confirm the super position and the contractor’s earnings against the threshold. Finally, update the agreement if the engagement has changed, rather than leaving the original in place.
Frequently asked questions
Is an independent contractor agreement legally binding in Australia?
An independent contractor agreement is a binding contract for services once both parties sign it. However, it does not settle whether the worker is legally a contractor. Under the whole of relationship test, the Fair Work Ombudsman says the practical reality of the relationship decides that, including how the contract is performed day to day.
What is the difference between an employee and a contractor in Australia?
An employee works under the direction of a business, uses its tools, and receives entitlements such as paid leave and minimum wages. A contractor runs their own business, controls how they work, carries financial risk, and can usually delegate the work. No single factor decides it, so the whole relationship is assessed together.
Does having an ABN make someone a contractor?
Having an ABN does not make someone a contractor. The Fair Work Ombudsman says a worker with an ABN or who issues invoices is not automatically a contractor. Similarly, the ATO says a contractor paid mainly for their labour is an employee for super guarantee purposes, even if they quote an ABN.
What are the penalties for sham contracting in Australia?
The maximum penalty for sham contracting is $21,840 for each contravention by an individual, according to the Fair Work Ombudsman. For a business with fewer than 15 employees it is $109,200, and for a larger business it is $546,000. To defend a claim, a business must show it reasonably believed the worker was a contractor.
Do I need to pay super for a contractor with an ABN?
You need to pay super for a contractor with an ABN if you pay them mainly for their labour. According to the ATO, that means more than half the contract value is for labour, payment is for their skills rather than a result, and they must do the work themselves.
Related reading
- Sample employment contracts bundle
- Employee onboarding checklist template
- What makes an HRIS Fair Work compliant?
Sources
- Fair Work Ombudsman. “Independent contractors.” Last updated 24 October 2025. Retrieved 8 October 2026. https://www.fairwork.gov.au/find-help-for/independent-contractors
- Fair Work Ombudsman. “Whole of relationship test.” Last updated 1 December 2025. Retrieved 8 October 2026. https://www.fairwork.gov.au/find-help-for/independent-contractors/whole-of-relationship-test
- Fair Work Ombudsman. “Opting out of the whole of relationship test.” Last updated 1 July 2026. Retrieved 8 October 2026. https://www.fairwork.gov.au/find-help-for/independent-contractors/whole-of-relationship-test/opting-out-of-the-whole-of-relationship-test
- Fair Work Ombudsman. “Independent contractor changes.” Last updated 1 July 2026. Retrieved 8 October 2026. https://www.fairwork.gov.au/about-us/workplace-laws/legislation-changes/closing-loopholes/independent-contractor-changes
- Fair Work Ombudsman. “Sham contracting.” Last updated 6 July 2026. Retrieved 8 October 2026. https://www.fairwork.gov.au/find-help-for/independent-contractors/sham-contracting
- Fair Work Commission. “Independent contractor disputes about unfair contract terms.” Last updated 1 July 2026. Retrieved 8 October 2026. https://www.fwc.gov.au/issues-we-help/independent-contractor-disputes-about-unfair-contract-terms
- Australian Taxation Office. “Super for independent contractors.” Last updated 2 September 2026. Retrieved 8 October 2026. https://www.ato.gov.au/businesses-and-organisations/super-for-employers/work-out-if-you-have-to-pay-super/super-for-independent-contractors
- business.gov.au. “Prepare a contract.” Retrieved 8 October 2026. https://business.gov.au/people/contractors/prepare-a-contract
