How to Become an Independent Contractor

There are many benefits of working as an independent contractor, you can set your own hours and rates based on your level of experience. Many companies hire independent contractors as part of larger projects or on a part-time or full-time basis.

If you have been thinking about starting work as an independent contractor or maybe making the switch from full time work, we have rounded up all you need to know.

What is an independent contractor?

An independent contractor is someone who is self-employed and provides their services to clients. It is commonly referred to as contracting or subcontracting and the majority of independent contractors set themselves up as sole traders, running their business under their own Australian Business Number (ABN). It is also possible to operate as an independent contractor while working in your own trust, partnership or company.

Benefits of becoming a contractor

Becoming an independent contractor in Australia brings with it a host of benefits:

  • You can become your own boss. Choose when and where you work and the nature of the jobs you take on.

  • The rates you charge reflect your skill-set and experience. You can also vary factors like the hourly rate, to take into account issues such as last-minute jobs or particularly difficult projects.

  • This flexibility also extends to things such as your work/life balance – if you need to take time off to deal with a childcare issue, then you have the freedom to juggle your working week in order to make this happen without losing money.

What is the difference between a contractor and an employee?

An employee can expect the following:

  • A regular salary
  • Any Income Tax due on their earnings is automatically deducted by their employer
  • The same applies to Medicare levies, which are deducted at source by an employer
  • Student Loan deductions are also deducted directly from the salary paid by the employer
  • They can opt to make automatic superannuation contributions on their earnings
  • They are entitled to holiday pay and sick leave
    While a contractor can expect the following:
  • Paid an hourly rate and the contracts on offer generally run for a period of between 1 and 6 months
  • You are classified as self-employed or an ABN sole trader. This means that you have full responsibility for paying your Income Tax and Medicare levies, as well as for filing GST returns where applicable
  • You don’t have an automatic entitlement to annual leave or sick days

Types of contractors

To help explain the different types of contractors we will use the building industry as an example.

Trade contractor

A trade contractor is someone taken on to work on a highly specific aspect of a wider project. The project in question could involve construction repair or renovation, and the trade contractor acts as a subcontractor to the organisation in charge of delivery.

Management contractor

If those in charge of a project opt to take on a management contractor, it is because they want someone with expertise in contacting further work contractors involved in the project. As a management contractor, you are likely to be taken on in the earliest stages of a contract, so that your expertise can be applied to questions of practical delivery of the plans as they are signed off.

Prime contractor

The prime contractor is sometimes known as the general contractor. Accepting this role means operating as the chief contractor across an entire project. You have responsibility for all aspects of that project and work on it from beginning to end.

Work package contractor

As a work package contractor, you are responsible for certain aspects of maintenance across a project. Depending upon the contracting model being used across the project, a work package contractor is employed either by the main project manager or by a maintenance contractor.

Design and build contractor

As a design and build contractor, you are involved in a project from the earliest possible stages. A design and build contractor is responsible for the initial design of a project as well as for the process of building that design.


A subcontractor is any contractor who has been engaged on a project by a person such as a:

  • general contractor
  • main contractor
  • prime contractor
    As a subcontractor, you work on a project for another firm hired by the project management team.

Construction manager

A construction manager has the responsibility of leading or overseeing construction projects of any size from beginning to end. As such, they are usually taken on in the earliest stages of the design phase, and are also expected to offer advice on a wide range of issues, including the selection of trade contractors to work on the project.

Importance of registering as an ABN sole trader

Anyone thinking of striking out as sole trader should register for an Australian Business Number (ABN). Any organisation receiving an invoice which doesn’t include an ABN is legally bound to deduct tax from any payment made, at the same time as declaring that income to the ATO.

Another big advantage of having an ABN is that it means you can register a domain name for a website, as well as indicating your professional approach to any clients you work with. The fact that you have registered for an ABN reassures prospective clients of your diligence, professional approach and compliance with rules and regulations.

Taking payments as an independent contractor

Many independent contractors raise an invoice for each client, in order to receive any payment for their work. Square payment solutions makes it quick and simple to take secure payments using a wide range of methods, including automatically generated and detailed professional invoices which are easy to track. In fact, 75% of Square invoices are paid within a day!

Square Invoices

Built to save time and get you paid faster.

Given that cash flow and late-paying clients are two of the biggest issues facing the majority of independent contractors, anything which speeds up the invoicing process makes the switch to independent contracting much more likely to be successful. In addition to stress-free invoicing, working with Square means that you can create a free online store, advertising your skills as a contractor to potential clients.

Requirements to become a contractor

Once you’ve decided to make the shift from employed to self-employed, you need to:

  • Understand your personal tax obligations
  • Seek out and understand information on issues such as insurance, workers compensation and superannuation, which can be found at the Self-Employed Australia website
  • If you’re not trading under your personal name, register a chosen business name
  • If you do opt for a registered business name, make sure that the name chosen doesn’t infringe on any existing trademarks
  • Apply for all relevant licences and registrations
  • Find ways of protecting your intellectual property, such as the content of any business website you set up
  • Purchase insurance to protect yourself against possible disruption and financial damage caused by work injuries or legal claims against you


The licences needed to operate as an independent contractor in Australia vary from state to state and the kind of work you undertake. For example, an electrician needs a specialist licence stating that they are legally and safely allowed to work in the field. The Australian Government Business website has all the information needed and a page for you to search for the licence requirements by business type.

Income Tax

It is your responsibility as an independent contractor to lodge an annual income tax return declaring all income and expenditure to the ATO in July of every year.


As an independent contractor, you are legally obliged to pay 2% of the amount you earn from contracting as a Medicare levy. This is in addition to any income tax you may have to pay, although exemptions do apply in certain circumstances. A Medicare levy of this kind covers:

  • General medical care
  • Pharmaceuticals
  • Hospital care
    The Private Health website carries detailed information on what your Medicare levy does and does not cover. Independent contractors earning over a certain amount, without private patient hospital cover, may also be subject to the Medicare Levy Surcharge (MLS).

Professional insurance

Many of the jobs on offer to independent contractors require them to have Professional Indemnity Insurance in place, although some recruiters may provide this cover. If you have to provide the cover, then your client needs to see a valid insurance certificate. Insurance of this kind covers you for claims against any negative impact the work you deliver has on the client organisation you work for.