Independent contractor agreement: what to include

Sometimes businesses need a little extra support to hit their goals. Engaging a contractor can be an effective decision to help you get there. To make the working arrangement work for everyone, it’s essential to have the right contractor agreement in place.

To protect your business, a clear, well-structured agreement helps you manage your compliance obligations and sets out each party’s rights and responsibilities. 

When everyone knows what’s expected from the start, you create smoother working relationships and reduce the risk of legal or financial surprises later.

In this checklist, you’ll find all of the essential elements to include in a contractor agreement, so both you and your contractors are set up for success from the very start. 

What is an independent contractor agreement?

An independent contractor agreement is a legally binding document that sets out the terms and conditions between a business and a contractor who is not an employee. 

This type of agreement covers the scope of work, payment terms, intellectual property rights and contractor responsibilities. It also sets out the relationship so both parties understand their rights and obligations under Australian law.

Unlike an employment contract, a contractor agreement does not provide entitlements such as annual leave, personal leave or redundancy. 

Why independent contractor agreements matter in Australia

Formalising your contractor relationship with an agreement is essential because it helps you:

• Meet legal requirements for contractor agreements under the Fair Work Act 2009
• Avoid sham contracting where someone is incorrectly treated as a contractor, but works like an employee
• Reduce the risk of disputes about scope, payment, responsibility or performance

Learn more about managing contractors in our changes to independent contractors guide and our advice on legal requirements when hiring contractors.

Essential sections to include

When drafting an independent contractor agreement, you should include these key sections. You can find the full list of sections to include when you download our template by filling out your details on the right hand side.

Parties and contractor details

• Legal names of both parties
• Contractor ABN
• Business and contact addresses
• Statement of independent contractor responsibilities

Scope of work and deliverables

• Clear description of services
• Timelines, milestones and deliverables
• Performance standards or acceptance criteria

Payment terms

• Fee structure such as hourly rate, daily rate or fixed fee
• Invoicing schedule and payment terms

Duration and termination

• Contract start and end dates
• Renewal terms
• Termination notice periods and grounds for immediate termination

Insurance and indemnity

• Minimum insurance cover required
• Indemnity clauses setting out who is responsible for losses

Independent contractor or employee? What’s the difference?

Knowing how to properly classify an employee and independent contractor is the first step to setting up your independent contractor agreement. And in Australia, the consequences of getting this wrong can be costly. 

The Fair Work Commission uses the ‘whole of relationship’ test to check if someone is a genuine contractor.

Employees usually have set hours, receive superannuation and paid leave and follow the direction of the employer. On the other hand, contractors run their own business, set their own hours and carry commercial risk.

To learn more about the difference between contractor vs employee relationship, check out our helpful resources:

• Contractor vs. Employee? What’s the difference? 
• Guide on how to hire employees vs contractors

Common mistakes to avoid

Many businesses run into trouble by relying on verbal agreements, which are difficult to enforce if a dispute arises. 

Another common mistake is leaving out key clauses, such as intellectual property, termination rights or confidentiality obligations, which can create confusion and legal risk later. 

Finally, businesses sometimes forget to review a contractor’s classification when the nature of the relationship changes. If a contractor starts working regular hours under your direction, they may need to be reclassified as an employee to stay compliant with Australian employment law.

By avoiding these mistakes and reviewing your contractor agreements regularly, you can protect your business, stay compliant with Fair Work requirements and maintain healthy contractor relationships.

Tips for drafting a strong contractor agreement

• Use a contractor agreement checklist to make sure all key clauses are included 
• Tailor the agreement to the type of work or industry
• Have the agreement reviewed by a lawyer or HR advisor (we can help with this)
• Update the contract if the scope, rate or conditions change

Get expert help with contractor agreements

Getting contractor contracts right is a smart business decision. A well-drafted agreement reduces risk, protects your intellectual property and helps give you compliance peace of mind. 

Employment Hero’s HR advisory team can help you with drafting an independent contractor agreement, reviewing your existing contracts and understanding contractor vs employee Australia classifications.

Book a demo today to see how Employment Hero can simplify your contractor responsibilities.

FAQs on independent contractor agreements

Disclaimer: The information in this checklist and its associated article is current as at 9 September 2025, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this checklist and associated article.