Why do you need a Subcontractor Agreement?
The Australian Taxation Office (ATO) describes the following, Ability to subcontract/delegate
When working out whether a worker is an employee or contractor, one factor to consider is whether the agreement or contract gives the worker the right to pay another person to do the work instead of them. The agreement or contract your business has with the worker is recommended to be in writing.
Worker can't subcontract/delegate the work
This is a characteristic of an employee. A worker can't subcontract/delegate the work if:
- the contract requires them to personally do the work
- the worker can't do the work themselves and they organise for another person to do it, but your business pays the other person – this is substitution, not delegation.
A commercial cleaning business has a contract to clean a number of small offices. The business has several cleaners who do the cleaning work, including Ann and Ben.
Ann can't do her shift and organises Ben to cover her. The business pays Ben for his extra cleaning shift.
As Ann only organised for Ben to complete her shift and did not pay him, she has not subcontracted/delegated the work.
End of example
Worker can subcontract/delegate the work
This is a characteristic of a contractor.
A worker can subcontract/delegate the work if they are contractually not required to do the work personally and can pay another person to do the work.
A remedial massage therapist, Con, has a contract with an aged care facility to provide massage therapy to residents.
The written agreement between Con and the aged care facility specifies:
- Con does not need to personally do the work
- any suitably qualified massage therapist who has a current police clearance and the appropriate insurance can do the work.
Con is unwell and can't work for a week, so:
- Con organises for another therapist (who runs a massage business) to cover his work
- the aged care facility still pays Con as outlined in the contracted agreement
- Con pays the other therapist for their work.
As Con was contractually not required to do the work personally and could pay another person to do the work, he has subcontracted/delegated the work.
All credit & thanks for this description & examples given to the ATO & the original can be found at https://www.ato.gov.au/business/employee-or-contractor/difference-between-employees-and-contractors/ability-to-subcontract/delegate/