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Employees, Subcontractors or Casuals, Which is best for you?

Someone said to me the other day that they had their tradespeople as subcontractors because that way, if there was no work to do, they didn’t have to pay them – to this guy, it was a way of managing risk – he didn’t want to get caught paying wages out if he wasn’t getting revenue in.

I met someone else who employs people as casuals for the same reason.

Neither of these people struck me as arseholes but they did fail to consider the impact of the lack of income security on the tradespeople or the impact on their business of the tradespeople also getting work elsewhere (because you would, wouldn’t you?)

I know other people who pay their tradies as subcontractors – because that’s how their tradies want it! They feel like they’re getting more because tax and super aren’t getting deducted and they can manage tax themselves. That’s what they say.

There is a bit going on here and I’ll unpack it piece by piece.

First, the risk thing. It’s great that you don’t have to pay them if there’s no work. But it’s going to affect their loyalty to you, isn’t it? And these days, they can get work easily so, if they’re any good, you risk losing them.

That’s a big price to pay for not having to pay them if you’re a bit quiet.

Next, there’s Fair Work and the ATO. They’ve set laws for this stuff – specifically to stop unscrupulous employers from classing people as subcontractors and not giving them their entitlements – paid holidays, sick pay, super etc.

They have a sham contractor test – if they fail you (they win any argument), you can end up getting hit for all the super and holiday pay you didn’t pay – it can be a big bill.

(Not if your person trades as Pty Ltd, you’re off the hook).

To my mind, if you’re really treating them like employees paying them by the hour rather than them quoting you on a job, for example, you should probably get them on as employees.

It’s nice for them because they get paid holidays and sick days. This feels like it’s worse if they look at their weekly pay and compare untaxed and non-deducted subcontractor money but it feels good when you’re sick or when you go on holiday and you still get paid.

I’ve written a comparison of pay for a subcontractor versus an employee. It’s for use if you’re wanting to persuade someone they’d be better off as an employee.

No surprise then that my opinion is that it’s better to have people as employees.

Genuine subcontractors, for example, if you are a builder and we’re talking concreters or plumbers, are fine – you do jobs for multiple builders. But your carpenters or your plumbers, if you’re the subcontracting company or if (really) they’re working for you all the time, you should have people as employees.

I get it feels risky, having them as subcontractors or casuals pushes that risk onto them. That might feel like it protects you from financial loss but it does a few other things too:

  • It puts them in a place where they might be on the lookout for a proper job – not many people want income insecurity
  • It says a little “f*ck you” too, doesn’t it? It says I’m looking after me, Jack. Even though the law says you have some responsibilities, you’re wriggling out of them a bit.

When you’re building a team, you want to build a team that likes working for you and with you, you want a great culture, people who will work hard for you and your business, and people who will try to help you build a great business. 

Everyone says this to me – of course, you do.

Part of them looking after you and your business is the reciprocal nature of these things – if you’re looking after them, they’ll want to look after you.

Don’t ruin that by refusing to look after them, you’ll have a sh*tty culture, high turnover and people who don’t care (because you don’t).

So subcontractors and casuals have a place but it’s a short-term one while you feel each other out or for seasonal work or some other short-term thing. Do it for too long and you risk damaging your culture. It’s not the only thing involved in culture, just so we’re clear.

The best way is to invest properly in your marketing and sales so you can commit to your people and be a good place to work where they can feel looked after, can have consistent income (it’s good for getting a mortgage as well as for their stress) and so you’re not at risk of getting caught out.

If you’ve got people who think it’s better to be a subcontractor, grab the guide and let them read it.

There are four ways you can engage with me:

1. Subscribe to these emails and get them once a week in your inbox so you never miss a video from me.

2. Join the Trades Business Toolshed Facebook Group where you can watch these videos, ask me questions or talk to your peers.

3. Attend my next Tradie Profit Webinar.

4. Book yourself a 10-minute chat with me. We’ll talk about whether coaching is right for you now and if it is, we’ll go further into the process before you have to make your mind up.

See you later.

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