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Is Your Contract Rate Fair ?

Note: This article has been updated to reflect the National Minimum Wage increase effective last 1 July 2017.

What exactly does a “fair rate of pay” mean for a contractor? It’s perhaps the most common question we’ve been asked in more than 15 years of providing contractor administration services.

First of all, unlike employees, independent contractors are not entitled to minimum wages or other benefits (such as annual leave, sick leave, etc.) that are contained in the National Employment Standards, Modern Awards and other industrial instruments.

Independent contractors receive payment for the work they do – they are engaged under commercial contracts that recognise the old adage of risk and reward. This means that contractors carry the risk of making a profit or loss. In our experience, offering results-based contracts typically has the mutually beneficial outcome of increasing productivity for the business and bigger profit for the contractor.

Independent contracting arrangements must satisfy the “Fair Contracts” provisions of the Independent Contractors Act, specifically Section 9. What is an unfairness ground and Section 12. Court may review services contract. In determining whether a contract is harsh or unfair, a court may consider such things as the terms of the contract, the relative bargaining power of the parties and whether the contract offers less remuneration than an employee doing similar work.

Indeed, it is this last point that must be considered in calculating a fair rate of pay for contractors.

When a contractor is remunerated for their time

If you engage and remunerate a contractor on a time basis (e.g., hourly, weekly), the rate offered must be at least equal to, or more than, what an employee performing similar work would receive. The rate must be casualised to include provisions for leave and other entitlements an employee would receive.

Since contractors providing their services on this basis are also entitled to Superannuation Guarantee contributions, a fair contractor rate must also consider this.

Considering the above, the grossed-up “fair contractor rate” as of 1 July 2017 is $25.25 per hour (inclusive of SG).

When a contractor is paid for results

For contractors engaged on a results basis (commission, piece rate, job rate, etc.), determining a fair rate means understanding the potential risks and rewards offered in the contract.

Let’s examine the case of independent sales contractors who work on a commission-only basis. Whilst this is a legitimate and common practice, it must be demonstrated that a real opportunity for commercial gain exists and that the earnings potential for a committed and talented sales contractor exceeds that of an hourly based employee.

Given the commercial nature of contracting, it is understood and accepted that not all workers will be suitable for all contract assignments. In some instances, despite the opportunity to earn equal to or more than the minimum, certain individuals may earn substantially less. This doesn’t nullify the validity or fairness of the contract rate being offered; it reflects the commercial risk of the contract. It may prompt the contractor to consider if they are suited to this opportunity.  Remember, contractors choose to offer their services and may opt out of the assignment at any time, for any reason, without notice.

As a result, it is not uncommon to experience a wide variation in individual contractor earnings when offering results based contracts – even after considering the amount of time spent by contractors undertaking sales activities.

Final thoughts

A “fair rate” of pay must be achievable in practice, not just on paper.

For a commission-only offering, this needs to be regularly tested and modelled using actual data to ensure that the opportunity to earn equal to or more than the fair minimum exists and that competent individuals stand to gain more (profit) from their output and activity.

If you have any concerns about the rates of pay you offer to contractors, we encourage you to seek advice to make sure you’re offering fair rates and contracts. You can always call us at Certica® for more information about how we can help you and your business become Contractor Ready™.

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2 responses to “Is Your Contract Rate Fair ?”

  1. Ian Rogers says:

    I am working as a taxi driver in a regional W.A. town. We are employed as subcontractors and have to have an ABN. Our standard rate of pay is between $18 – $19 per hour gross. We are supplied with a taxi and incur no costs unless we damage the car. Friday and Saturday nights are on “Profit” share where the driver receives 45% of the gross takings and the owners 55%. This means to me an income of around $14 to $23 per hour depending on the night for a 10 hour shift from 6pm to 4am. For the hours worked and the income this seems low – is it? Other shifts are $19 per hour gross – less my tax obligations which leave me with much less than a liveable income. Any advice?

  2. ContractorOla says:

    Many people prefer to be a contractor, there are many platforms for contractors on the internet, you can set your hourly rate and for example on the client pays only a one time fee of twice the hourly rate.

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