Legal Traps in Contractor Agreements for Real Estate Agencies

Picture this: you’ve signed a contractor agreement with a star sales agent, thinking you’ve done everything right. Fast forward a year, and you’re hit with a tax bill, a Fair Work claim, or an insurance issue that you didn’t see coming. Suddenly, the “contractor” you thought was running their own show looks more like an employee – and you’re on the hook.

This is one of the biggest traps for real estate agency principals. Contractor agreements can be powerful tools when used correctly, but they’re also ticking time bombs if they’re not set up properly. The key is to show that your sales contractors are genuinely running their own business within your agency, not just working as disguised employees.

In this blog, we’ll break down:

• What makes a genuine contractor arrangement

• The licences and insurances contractors must hold

• Why payroll tax and superannuation aren’t as simple as you think

• Real case studies where agencies got it wrong (and how we fixed it)

Contractors Must Run Their Own Business

Here’s the golden rule: contractors in real estate need to look and act like they’re running their own agency inside your agency. That means they can’t just be another agent on your books. They need:

• A Class 1 real estate licence (or equivalent in your state)

• A corporate licence so their business operates through a company

• Their own corporation structure, not just a sole trader ABN

Without this, it’s almost impossible to prove they’re independent. If they look, act, and feel like one of your employees, the law will likely treat them that way.

Case Study: The “Contractor” Who Wasn’t

We worked with an agency that had several salespeople on “contractor” agreements. None of them held a corporate licence or operated through a company. The ATO and Fair Work argued they were employees, and the agency faced back pay, superannuation, and tax penalties. The Contractors faced tax penalties too. We restructured their arrangements, set up proper companies and licences, and avoided further headaches.

Insurances Contractors Must Carry

Too many agencies forget this part. A true contractor is responsible for their own risk, which means they need to hold:

• Public liability insurance

• Professional indemnity insurance

• Workers compensation insurance

Here’s where many go wrong: agencies often assume that if a contractor has workers compensation, that’s enough. But without public liability and professional indemnity, the agency can be left exposed. Remember, if your contractor is truly independent, they carry the cost of mistakes, not you. 

Payroll Tax and Superannuation: The Tricky Bits

This is where it gets messy. Many principals assume that having a contractor agreement automatically means no payroll tax or super is payable. Wrong. Even if your contract says otherwise, the law might decide you’re still liable.

The ATO looks at the reality of the arrangement, not the label. If the contractor is essentially working like an employee – relying on you for work, following your direction, and not running their own independent business – you could still be responsible for superannuation and payroll tax.

That’s why it’s essential to work closely with both your lawyer and your accountant. You need a contract that sets out the right terms and an accounting strategy that meets your obligations.

Case Study: The Superannuation Shock

One Sydney agency had five “contractors” on paper. In practice, they worked just like employees – using the agency’s branding, office, and systems. The ATO audited and decided superannuation was payable. The agency faced a huge bill. We stepped in, redesigned their contractor model, and helped put proper structures in place to prevent it happening again.

The Contractor Litmus Test

So how do you know if your contractor agreements are safe? Here’s a quick test:

• Do they operate through a company and hold a corporate licence? 

• Do they have their own staff, or is all the work tied to one person? 

• Do they invoice you and get paid commissions directly from trust? 

• Do they carry their own insurances? 

• Do they use their own branding or have an IP licence to use yours? 

• Do they own their client relationships? 

If the answer is no to most of these, you probably have an employee, not a contractor. 

Key Takeaways 

• Contractors must run their own business within your agency, complete with licences, company structure, and independence.

• They need to carry all key insurances – public liability, professional indemnity, and workers compensation.

• Payroll tax and superannuation may still apply, even if the contract says otherwise.

• The ATO and Fair Work look at the reality of the relationship, not the paperwork.

• Get proper advice to avoid costly misclassification mistakes.

Next Steps

If you’re relying on contractor agreements in your agency, now is the time to review them. The risks are too big to ignore. A poorly drafted contract could cost you hundreds of thousands in fines, back pay, and penalties.

Book your free 10-minute call with our team. We’ll review your contractor agreements and help you protect your agency from hidden risks.

Frequently Asked Questions (FAQ)

• What’s the difference between a contractor and an employee in real estate?

  Contractors must operate as independent businesses with their own licences, company structures, and insurances. Employees are directly engaged and rely on the agency for direction, branding, and risk coverage. 

• Do sales contractors need a corporate licence?

  Yes. Without a corporate licence and a proper company structure, it’s almost impossible to prove they’re running their own business. This is one of the biggest mistakes agencies make. 

• Who pays superannuation for contractors?

  It depends. If the contractor is truly independent, they pay their own. But if the arrangement is deemed to be “wholly or principally for labour,” the agency may still be liable. 

• What insurances should a sales contractor have?

  At minimum: public liability, professional indemnity, and workers compensation. Anything less, and the risk often shifts back to the agency. 

• Can an agency be fined for misclassifying employees as contractors?

  Yes. Agencies can face back pay, tax penalties, and fines from the ATO and Fair Work if they get it wrong. 

Kristen Porter – Partner, O*NO Legal

Kristen Porter is one of the Partners at O*NO Legal. With over 20 years of legal experience and dual degrees in Law and Commerce, Kristen brings a rare blend of legal expertise and commercial insight to every matter. She is a trusted advisor to business owners and agency leaders across Australia, helping them build profitable, legally-sound businesses. Known for her practical, no-fluff advice, Kristen specialises in real estate agency law, corporate, and privacy law and regularly presents at industry events. At O*NO Legal, Kristen leads a team committed to making the law clear, actionable, and always aligned with your business goals.

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.