An independent contractor is a person that works for themselves. They are sometimes known as self-employed, sole traders, freelancers, self-managed artists or independent artists or arts workers.
Independent contractors are often hired by other people or businesses to provide goods or services, but not as employees.
Independent contractors may be sole traders. A sole trader is where an individual person runs a business.
Learn more about independent contractors.
Is it the right business structure for you?
You will need to decide whether setting up as an independent contractor is the right structure for your creative work.
Many creatives who work using their own personal business bank account, tax file number and name may already be working as independent contractors without realising it.
| Benefits include: | But remember: |
|---|---|
| Low set-up costs (compared to other structures like companies or trusts) | You may still need to comply with various business registrations, taxes and have certain insurances. |
| You can use your own individual tax file number (TFN) |
Applying for an ABN can help you avoid higher rates of withholding tax by the person engaging you. You may need to register for GST depending on your revenue. Business profits and losses are taxed differently to some other business structures. |
| You own the income you earn (subject to tax) | Keeping a separate bank account for your business allows you to keep track of your business finances. |
| You can trade using your own name | A registered business name can help protect your brand and name so others can’t use it. Also consider a trademark for your business name or brand if you want exclusive rights to it. |
| You have greater control over business decisions and business assets | You are personally responsible when things go wrong – your personal assets may be at risk. This is a reason to consider insurance. |
| You can still hire workers – including employees or other independent contractors | If you have workers, you may need to comply with workers compensation requirements, superannuation and other employment minimum conditions. |
In practice:
Peggy is an independent contractor with an ABN
Peggy is a specialist stage prop designer and is set up as an independent contractor. Peggy is hired by a production company to design props for a stage play.
To avoid having PAYG withholding tax taken from the payment she receives, Peggy has an ABN.
She provides the ABN to the production company before they pay her for her services.
Mai is an independent contractor who used to use a Statement by a Supplier
Mai is a professional artist who is sometimes engaged by her local council to design and create public artwork.
Previously Mai was giving a Statement by a Supplier to the council for payment.
Now that Mai is more established as an artist, she applies for an ABN. Now Mai issues an invoice to get paid.
George is an independent contractor with a separate business account
George is a professional musician but is also employed as a part-time school teacher. George provides private music lessons and concert performances as an independent contractor when he is not teaching. George uses his own tax file number for both areas of work but sets up a separate bank account to track his income and expenses for his work as a musician.
Getting advice can really help
Talking to a financial advisor or accountant can help you decide on the right business structure for you.
If business administration is not for you, many accountants can manage certain business registrations and taxation obligations on your behalf.
Business registrations and taxes
If you decide to set up as an independent contractor, there are things you may need to register your business for.
Common registrations include:
- an Australian Business Number (ABN)
- a registered business or trading name
- licenses or permits needed for the service or work you are providing
- a domain name
- a trademark
- a separate business bank account
- registering for goods and services tax (GST)
- paying yourself super.
Some business registrations are optional, but there could be benefits to you and your business if you have them in place.
Learn more about business registration and business taxation.
Insurance
Insurance is important for independent contractors.
An independent contractor’s business is not considered separate from their personal income and assets.
This means that if something goes wrong, the independent contractor can be personally responsible (or liable). Insurance can help limit your personal liability and financial responsibility.
Many organisations require independent contractors to show they have insurance before hiring them. For example, professional indemnity insurance.
If you engage workers, some types of insurance, like workers compensation, are compulsory.
Learn more about insurance.
Fees, payment and invoicing
Independent contractors get to decide what price they will accept for their work.
There are different ways independent contractors can agree to be paid, and there are a few things to consider when working out a price and setting payment terms.
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More in this section:
Setting up as a company
There are lots of things to consider when deciding whether a company is the right structure for your creative business. Setting up as a company can offer benefits, but it is not straightforward and can be costly.
Setting up or joining a co-operative
A co-operative is a business structure that exists to benefit its members. It can be a useful business structure to support creative professionals working in creative industries.
Registering your business
Most creative businesses need to be registered for different things so they can operate.
Business tax
Having some knowledge of how a business works with the tax system is important for any creative business – even if tax is usually something you’re not very interested in.
Business insurance
Business insurance can protect the business and the owner if things go wrong. Some insurances are required by law. Others can be a good idea.
Record keeping for businesses and organisations
Keeping the right business records will help you keep things on track and meet your business obligations.
Employee records
Businesses and organisations must keep employee records, including about working hours, pay, leave and super.
