Working for a business can be restrictive and time-consuming, and often leaves employees with a lack of motivation, vision and sense of freedom. Unlike the traditional route of employment, however, subcontractors are able to reap all of the benefits of work without the restrictions of having someone else control their schedule. This Business Kitz blog post will cover everything you need to know about subcontractor work.
What is a subcontractor?
A subcontractor is defined as a person who is hired by either a general contractor or a project manager to work on a specific project. The subcontractor definition can typically be described as ‘small business owners’ and their work is usually conducted for the general contractors according to a fixed finishing date, or until the work is complete, under an agreement. This agreement will also determine the payment as a result of the work, based on a quote provided prior upon hiring a subcontractor.
Why become a subcontractor?
There are many benefits to being a subcontractor:
- Flexibility – Being a subcontractor allows you to accept or decline any projects to ensure they are suited to your skills, enjoyment and time schedule.
- Choose your own rates – As a subcontractor, you are running your own business, which means you have full freedom to choose what rates you charge general contractors for your services. This can mean you are earning more than traditional employees, however, this can also be a disadvantage. It is important to know your value, and to make sure you are not limiting your ability to find work by using unaffordable pricing.
- Tax benefits – As a small business owner, you qualify for certain tax benefits according to the ATO . This allows you to deduct any employment related expenses from annual tax obligations. This allows you to claim back more from your work and save money. In order to be a fully functional subcontractor, you require an Australian Business Number (ABN), which can be created via this link. It is also important to be aware of the tax protocols within your state or territory.
What is the difference between an employee and a subcontractor?
The most notable difference between an employee and a subcontractor is the employment relationship and legally binding agreement made between the worker and the company.
An employee is hired by a business to provide a service to a company on a regular basis in exchange for payment. This falls under an employment contract which is a long term agreement between the employee and employer. Employees therefore are solely employed to provide a service for one company, and must follow instructions based on work hours, payment and tasks based on their supervisors. Employees receive many company benefits which may include paid leave, bonuses and more, depending on their level of work (casual, part-time, full-time).
A subcontractor, however, enters a subcontractor agreement with a company which is a short-term arrangement and often has a fixed rate of payment. Although subcontractors are not covered by a proper employee agreement, a revision of their agreement is still legally binding and can be defended in court. Subcontractors do not receive any company employee benefits.
The hiring business must legally identify the worker as a contractor or employee from their initial employment. If you are incorrectly treated as a subcontractor when you were hired as an employee, the business must account for PAYG on your wages, pay you superannuation and provide annual and long service leave. Incorrectly classifying an employment relationship as a contractor relationship may result in a range of liabilities for a business, including breaching protections against sham contracting arrangements under the Fair Work Act 2009 (Cth) and other issues such as underpayment.
What should I consider when becoming a subcontractor?
Although becoming a subcontractor comes with many benefits, there are several considerations that must be made, which may influence your decision:
- Low job security – As an independent contractor, you do not have a safe and secure employment agreement with a business, unlike employees. This gives the company a greater ability to dismiss you from work if they are not satisfied.
- No job guarantee – There is no guarantee that you will receive work, and it is therefore up to you to promote your skills to businesses, in hopes of achieving a paid work agreement.
How do I become a subcontractor?
You can become a subcontractor in almost any industry, which means your options are limitless! By following these steps you will be able to get your subcontractor business up and running in no time.
- Qualifications and training – It is first important to ensure that you obtain the relevant training or qualifications needed for your particular industry. This will inevitably ensure that you are able to gain more work, and ensure that you are completing your work to a suitable standard.
- Determine your business structure – There are a variety of ways you can structure your business as a subcontractor. You can be a sole trader, which is the easiest for independent contractors, or you can grow your business through partnerships or company structures. To learn more about these types of business structures, this Business Kitz article goes into more detail.
- Set-up your business – The next step is to register your business name. The ASIC website offers simple instructions on how to set this up, and allows you to determine if your name is available. You must also apply for an ABN to help identify your business. This ABR link will allow you to create your ABN, so that you can start your services as a business.
- Licensing (if required) – Depending on your chosen industry, you may be required to obtain a license in order to work. Plumbers and electricians are prime examples of those who need a license to perform work, according to different states. Make sure to do some research to determine if this is applicable to your profession. The Office of Fair Trading will provide you with this relevant information, for Queenslanders, you can use this link.
Business Kitz offers an Independent Contractor Agreement Template and an Australian Subcontractor Agreement Template which will ensure (as a subcontractor) you are protected from any illegal or dishonest statements or actions from the hiring business.
If you are a subcontractor or looking to become one, it is important to safeguard your work and ensure you are treated fairly by the hiring company. If you are looking for advice on how to ensure your work is safeguarded or are worried you are an employee being treated like a subcontractor within your company, please do not hesitate to contact our sister company, Legal Kitz. You can contact us by phone on 1300 988 954 or email to firstname.lastname@example.org. We offer a FREE 30-minute consultation for all your legal needs.