Subcontractor versus employee: what’s best for tradies in business?
Written by Andy Smith
Subcontractor versus employee? This is an old chestnut of a dilemma for tradies in business when hiring new team members. What works for you in your trade business may not be a great fit for the next person. It can be a bit of a catch-22.
In this article, I’ll unpack the subcontractor versus employee situation and give you my verdict on what I reckon is the best solution. I’ll also cover what’s referred to as sham contracting and what I means for you.
Subcontractor versus employee: what’s the difference?
When you’re hiring new tradies, it’s important to understand the difference between subcontractor and employee. In simple terms, here’s how the Australian Taxation Office makes the distinction between the two:
- An employee works in your business and is part of your business.
- A contractor is running their own business.
Without diving too deep into the complexities of your specific obligations for each, I will point out the problem of sham contracting. Basically, it’s an arrangement when employers attempt to disguise an employee relationship as a contracting one. It’s never okay to ‘sham’ an employee out of entitlements. Serious penalties apply.
Subcontractors: pros and cons
There are 1 million independent contractors in Australia. That’s a lot of subbies! For tradies in business, the biggest pros to hiring a subbie is you only pay them when the work’s on. If a subbie gets an injury on-the-job, it falls back on them, not you.
In terms of cons, because a subbie is running their own business, if sh*t hits the fan with one of their own clients, you could be left in the lurch. Their own work will come first most of the time. This is not a sustainable scenario.
The other consideration is working out how willing the subbie is to follow your business systems. For example, our plumbing business, Dr. DRiP, is systemised and structured. Things can get unstuck if a subbie won’t listen to your rules.
In an ideal world, tradie bosses would hire subcontractors full-time. We’d get all the benefits without the hassle of tax and entitlements. Given we don’t live in an ideal world, hiring employees is a realistic option for tradies in business.
Employees: pros and cons
There are some workers who are always treated as employees:
- trades assistants.
Obviously, this is relevant to tradies in business. In most cases, these workers are paid under an award and receive specific pay and conditions.
In my view, employees are the way to go. They’re 100 per cent committed to your business. There are no blurred lines in the arrangement. An employee performs work, under the direction and control of you, on an ongoing basis.
Of course, it may not be the way to go for everyone. Either way, the subcontractor versus employee dilemma will continue to spark debate for tradies in business. Want to share your thoughts on topics relevant to tradies? Here’s how.
- Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
- Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.