How to set up as an independent contractor in Australia

Are you looking to trade in your suit and tie for board shorts and flip-flops?

If so, Australia is the ideal location to start your self-employed journey.

With a famously innovative spirit and a high quality of life, you won't be short of opportunities or support down under. The Australian government provides significant assistance to small businesses, while around 8% of the country's population already work as independent contractors.

Before you can become one of them, though, there are several steps you need to take to register your business, manage payments, and avoid misclassification. This article guides you through the process, helping you fully understand the benefits and potential risks of freelance work.

Understanding independent contracting in Australia

Independent contractors are workers who provide contracted services to another party. They operate as self-employed business owners rather than traditional employees. However, under Australian law, they are classified differently from employees and are not entitled to the same benefits.

See also: Why businesses hire international employees vs. contractors

The Australian government lists several indicators that help clarify whether a worker is a contractor or an employee, including:

• Control over work: Employees typically follow detailed instructions from their employer. Independent contractors decide how and when to perform their tasks.

• Financial risk: Employees typically know their monthly income and have little financial risk. Independent contractors have to balance the risk of profit or loss based on their business decisions, such as investing in new tools.

• Tools and equipment: Employers generally provide tools and equipment for their employees. Contractors supply their own tools and equipment. A graphic designer, for instance, would use their own software.

• Delegation of work: Employees perform all their required tasks themselves, while contractors can delegate or subcontract work. For example, a contractor might hire a freelancer to help them with a project.

• Hours worked: Employees often have set hours defined by their employer (think 9 AM to 5 PM). Contractors set their own working hours based on project requirements, giving them more flexibility.

• Expectation of ongoing work: Employees have a continuous employment relationship with their employer. Contractors are typically engaged for specific projects or periods, like a consultant hired for a six-month project.

Understanding these distinctions is important, as it helps you correctly classify your work status to avoid penalties and fines.

Other classifications

Temporary workers can be engaged either as fixed-term employees, casual employees, or independent contractors. Unlike permanent employees with an open-ended contract, fixed-term employees typically work for a pre-agreed period but are still entitled to the benefits and protections of permanent employees.

The classification of casual workers depends on the agreed working arrangement. They’re typically paid hourly and called in as needed with no commitment to an ongoing relationship, but can still be classified as employees if it suits both parties.

Benefits and challenges of working as an independent contractor

The freedom of the independent contractor lifestyle is alluring to many. However, it’s wise to weigh both the benefits and challenges of contracting before jumping into this career path.

Benefits of independent contractor work

Let’s first look at the advantages of independent contracting:

• Flexibility: As a contractor, you get to choose your projects, clients, and working hours. Not only does this allow for a better work-life balance, but it also lets you work when you’re most productive.

• Autonomy: You choose not only how you work (processes) but the tools you’ll use to finish a project.

• Earnings: With specialized skills, your income could potentially be higher than what you’d get with traditional employment. You set your rates and can take on multiple clients.

• Variety: You can work on a wide range of projects with different clients. This diversity can keep you on top of the latest skills and trends while also keeping each work day interesting.

• Tax deductions: As an independent contractor, you can claim business-related expenses, reducing your taxable income. Home office costs and equipment purchases, for instance, can be deducted.

Challenges of independent contractor work

The freedom and flexibility of contracting also come with challenges to be aware of, including the following:

• Income instability: Income can fluctuate, which can create financial stress. Unlike an employee, who typically receives a steady paycheck, a contractor’s earnings can vary from month to month.

• Self-employment taxes: You are responsible for managing and paying taxes, including goods and service taxes (GST) and superannuation (pension). This requires careful financial planning and record-keeping.

• Lack of benefits: As a contractor, you don’t have access to employer-provided benefits such as health insurance, leave, or retirement plans. You need to arrange and pay for those yourself.

• Administrative tasks: Without an administrative team, you handle all aspects of your business, including marketing, invoicing, and financial management. This extra workload can be a big time commitment.

• Liability risks: Contractors are personally liable for their business debts and obligations, requiring additional insurance. It’s important to have the right coverage to protect your personal assets.

As you consider both the benefits and the challenges of independent contracting, assessing your strengths and weaknesses is crucial. Are you a self-starter? Do you have the organizational skills needed to balance both projects and business admin? Weighing both sides will help you prepare for the potential downsides and increase your chances of success as you transition into independent contracting.

Business registration in Australia

To work as an independent contractor in Australia, you can operate as a sole trader (sometimes called a sole proprietor) or incorporate a legal entity — whichever best suits your needs.

The sole trader or proprietor model is ideal for individual, independent contractors who intend to be sole owners (although you can still legally employ staff if required). You have full control of the enterprise. Although there is no legal separation between you (the owner) and the business, you are personally responsible for all its debts and liabilities.

If you’re looking to incorporate, you can set up one of the following business structures:

• Partnership: A legal entity composed of two (or more) partners. Income and losses are distributed between you and your partners.

• Company: A legal entity that is separate from you, the individual. It must include a minimum of one shareholder and one director. All income and losses are attributed to the company as opposed to you personally.

• Trust: A specialist structure whereby a trustee manages the business and all of its activities for beneficiaries.

A sole trader or proprietorship is the simplest and most common structure for freelancers and independent contractors.

Steps for registering your business

The key steps for registering your business depend on the structure you’ve chosen: sole trader or proprietor, partnership, company, or trust.

Most independent contractors are sole traders or proprietors. Sole traders need to:

1. Register a business name with Australia’s Business Registration Service (BRS) for a small fee.

2. Apply for an Australian Business Number (ABN).

You can register for an ABN online for free — all you need is proof of identity, some basic details about your business, and your business structure.

For contractors who choose to incorporate, things are more complex — though the key steps are similar:

• Partnership: Choose a unique business name, register it, and obtain both an ABN and a Tax File Number (TFN) for the partnership.

• Company: Register with the Australian Securities and Investments Commission (ASIC) and get an ABN and TFN.

• Trust: Establish a trust deed with a legal professional’s assistance. Then, apply for an ABN and a TFN for the trust.

Useful tip: If you’re unsure which structure is right for you or how to register your business, the BRS has a handy “Help Me Decide” tool that can provide guidance and advice. You can find more guidance on how to register your business on the BRS portal.

Importance of registering a business name and having an ABN

Registering your business name and obtaining your ABN is essential for several reasons:

• Communication and invoicing: You must list your business name on all your communications and invoices. This makes your business more credible and conveys professionalism, making clients more likely to trust and hire you. Without an ABN, you can’t issue invoices or legally receive payments.

• Goods and services tax (GST): If your annual income exceeds $75,000, then you need an ABN to register for GST to claim GST credits.

• Avoid withholding tax: Without an ABN, your clients must withhold 47% of your payments as tax. Having an ABN avoids this and allows you to receive full payment.

Taking these steps not only legitimizes your business but also offers legal and financial benefits.

How do I get paid as an independent contractor in Australia?

As a contractor, receiving and accessing your payments is crucial. Employees get paid automatically through payroll, but independent contractors have to invoice their clients. This can be tedious and time-consuming. You need to send invoices to each client (often at different times of the month), and then collect payment in the client’s preferred payment method.

Some of the common ways you can collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick but often come with hefty service fees. Other methods may have unfavorable exchange rates if you’re collecting payments from clients in other countries.

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Australian dollars — and with no hidden fees. Remote can help you create clear and professional invoices that outline the goods or services you provide, your payment terms, and your due dates. Learn more about how we can help here.

Independent contractor taxes in Australia

If you’re an independent contractor, understanding your tax obligations is critical. As a sole trader in Australia, you are responsible for paying your own taxes and superannuation (pension) contributions, unlike traditional employees. The tax year in Australia runs from July 1 to June 30, with returns due on October 31.

Like many countries, Australia has a progressive income tax rate, which determines how much tax you need to pay. As a sole trader, you don’t need to submit a separate tax return. Simply record your business income and expenses in your individual tax return (in the section entitled “Business and professional items schedule”).

You can also claim deductions for business-related expenses, charitable contributions, and pension fund contributions.

Note that non-residents are subject to a different taxation structure and must file a return on any income they make in Australia (even if it is below the minimum taxable threshold of $18,200).

GST information for independent contractors in Australia

You may also need to pay attention to Australia’s goods and services tax (GST). This is essentially a value-added tax (VAT) that applies to most goods and services. The standard GST rate is 10% in Australia. However, some products and services — like food, exports, health, medical, and education supplies — are GST-free.

As an independent contractor, you’re required to register for GST within 21 days if you meet any of the following criteria:

• Your GST turnover is $75,000 or higher ($150,000 or higher for non-profits)

• You provide taxi or ridesharing services, regardless of your GST turnover

• You want to claim fuel tax credits, regardless of your GST turnover

If you don’t meet any of these criteria — for example, if your GST turnover is less than $75,000 — registering for GST is optional. You can learn more about GST through the BRS.

Liability considerations for independent contractors in Australia

In Australia, sole traders are personally liable for finance and tax debts. This means your private assets can be forcibly used to settle your business debts.

To reduce your risk, consider the following:

• Business insurance: This protects you against claims of injury or property damage and may cover legal costs.

• Other coverage: Depending on your industry, additional insurance such as equipment or cyber liability coverage may be necessary.

Insurance tip: Shop around for the best rates and coverage options based on your specific business needs.

Accounting requirements for independent contractors in Australia

As an independent contractor, you are responsible for adhering to Australia’s accounting laws.

Each business structure has different accounting requirements, but luckily, the requirements for sole traders are fairly straightforward. You must:

• File your business income and expenses in your individual tax return (in the “Business and professional items schedule” section)

• Keep financial and tax records for at least five years

• Notify the government of any business changes within 28 days

It isn’t mandatory to open a separate business bank account, but it’s generally recommended to simplify your business income and expense accounting.

Here are 4 tips to help you maintain accurate records:

1. Separate your business and personal finances: This simplifies tracking and prevents errors. Separating accounts also avoids mingling personal and business expenses when it’s time to report.

2. Use accounting software: Accounting tools like Remote streamline record-keeping, invoicing, and tax preparation. You’ll save time and reduce bookkeeping errors.

3. Track expenses: Regular tracking helps in claiming all possible deductions, reducing your taxable income. You significantly improve your financial clarity.

4. Plan for tax obligations: Regularly setting aside funds for taxes prevents surprises and helps you meet your tax obligations on time.

Remote can help you stay on top of your accounting responsibilities by keeping everything in one place. Learn more about how we can help here.

How to avoid contractor misclassification in Australia

You’ve already seen that employees are classified differently from independent contractors in Australia.

The protections and benefits that employees enjoy don’t typically apply to contractors. Employees receive minimum wage and overtime pay. They have job security and unfair dismissal protections, along with workers' compensation for injuries on the job — on top of the paid leave and superannuation contributions discussed earlier.

Because of these differences, it’s important to make sure that you’re classified correctly. Sometimes, companies try to circumvent their legal obligations by deliberately misclassifying contractors as employees, meaning their workers don’t receive the benefits they’re entitled to. This is called sham contracting, and in Australia, it’s illegal.

Sometimes, misclassification can happen accidentally, too, but whether it’s intentional or unintentional, misclassifying employees as contractors can result in penalties and fines for both you and your client. Penalties can include the following:

• Fines of up to AUD $82,500

• Back payment

• Tax penalties

• Penalties for pension shortfalls

To make sure you’re classified correctly, discuss your role and responsibilities with your client and review the working arrangement regularly. If you’re not sure what you should be classified as, the Australian Fair Work Ombudsman clearly sets out the differences between employees and contractors. If your role with your client begins to resemble that of an employee, you can discuss the possibility of converting to employee status to avoid misclassification (see the next section).

If you still think you’re being misclassified or you’re unwillingly part of a sham contracting arrangement, you can contact the Fair Work Ombudsman for guidance.

For further information, Remote has developed a comprehensive guide to employee and independent contractor classification.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in Australia?

As an independent contractor, it’s always in your best interest to have a conversation with your client about both the scope and control of the work being done and the number of hours expected. Use the list of contractor vs. employee indicators as a guide for your discussion or check out Remote’s misclassification risk tool.

However, if you find yourself in one or more of the following situations, then it’s time to open (or reopen) a dialogue with your client. Common situations include the following:

• Your current classification as a contractor is noncompliant with local labor laws

• Your ongoing contract is outdated and causing issues

• You feel like you need a greater share of responsibilities within the client’s organization

• You need access to the benefits that employees are entitled to in Australia

Carefully discuss with your client the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you. For example, an employer may find that moving a contractor to an employee fosters a cohesive workplace culture — which leads to more loyalty and retention in their workforce.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Australian law.

To better advocate for flexibility at work, download our Choose Remote Toolkit today.

4 ways Remote makes life easier for contractors and their clients

Life as an independent contractor comes with plenty of additional responsibilities.

Remote’s platform can help alleviate many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. Remote allows seamless international payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payment systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Australian dollars hassle-free, without any hidden fees.

2. Remote’s in-app contracts are compliant with local labor laws

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Australian laws and insights into complex concerns such as local classification and intellectual property protections.

3. Remote automates invoice management

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by disparate processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Remote makes tax management easier

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in Australia

Becoming a freelancer or independent contractor in Australia gives you the freedom and flexibility to work on your own terms. However, the administrative side can sometimes pull you away from focusing on your clients and delivering top-notch work. That's where Remote comes in.

Remote can help you avoid intermediary fees, draft compliant contracts, improve your invoice management, and stay on top of local labor laws. Get started with us, and let us take care of the admin so you can focus on what you do best.

Learn more about how our expertise can save you time and resources today.