Many entrepreneurs often start up as sole traders because it’s a simple and cost-effective business method. However, depending on the service, you may need to subcontract some tasks out to boost your capacity without actually hiring employees.
Another scenario is where your client might request a specific service which needs specialised skills or equipment to accomplish. This is when you would hire a subcontractor to help with specialist work you can’t do yourself.
As your service business grows, it becomes almost impossible to handle every aspect of the business all by yourself. For your business to thrive, you need people with the right skills, experience, and equipment to work on the client project you’ve taken on.
As a sole trader in Australia, you can hire a subcontractor to work on a certain aspect of a project. A subcontractor is an independent business entity, often a sole trader like you, who provides specialised services. Using a subcontractor gives you a lot of flexibility without the commitment of hiring employees – but there are also some rules you will need to follow.
If you’re a sole trader in Australia who requires help with particular components of your business, think about hiring a subcontractor! Continue reading to learn about the benefits and guidelines for subcontracting labour in Australia.
Can Sole Traders Subcontract Work in Australia?
Yes, you can absolutely hire a subcontractor as a sole trader in Australia, but there are certain guidelines you have to follow.
The process sounds simple: your client pays you for the service you quoted, and you pay the subcontractor for their portion of the job. In general, you’re allowed to subcontract work as a sole trader. However, it’s important that the client is also happy for you to do this, and that it’s reflected in the contract they sign.
When a client hires you for a service, you’ve made a promise to them that they expect you to follow through on. If you’ve given the impression that all the work will be done by yourself or your staff, using a third-party subcontractor could leave the client dissatisfied – and could even be breaching your contract terms.
You should also make sure your client agrees for you to subcontract. As a result, include a condition in your client contract or service agreement that allows you to subcontract some of your work. If you and your client mutually agree on the use of subcontractors, then you can seal this with a signature.
Lead generation platforms have differing policies on whether you can subcontract part or all of a job, so if you’re securing leads from one of these websites, make sure you follow any rules they have.
If you delegate a portion of this task to a subcontractor, you’ll also want to be certain the subcontractor will uphold the usual standards of your business. Since you’ve made a commitment to the client, it will be your responsibility to resolve any issues resulting from the subcontractor’s work.
This is why a detailed subcontractor agreement is required. You and your sub-contractor should be really clear on the scope of work, limitations of such services, the payment process, contingencies if the client is unhappy, and other important details.
Why Might a Sole Trader Hire Subcontractors?
There are several reasons why allowing independent contractors to undertake a portion of your work can be helpful to you:
- A subcontractor might have specialised skills that are exactly what you need to accomplish what the client wants.
- A subcontractor might have the right tools and equipment needed for the task at hand, meaning your business can make use of it without the capital investment.
- Subcontractors can help your business match seasonal fluctuations in demand.
- Subcontracting out work allows you to maximise short-term profit and take advantage of opportunities or scale up if you need extra capacity.
- Subcontracting allows you to try out service providers and evaluate them for their quality, reliability, professionalism, and more.
Benefits of Hiring Subcontractors vs Employing Staff for Sole Traders
If you’re a sole trader or a budding entrepreneur, it can be a good idea to start with subcontractors before considering full-time or even part-time employees. You can enjoy the following benefits when you choose to subcontract labour:
- The subcontractor relationship is different to an employee relationship – meaning compensation and working hours are based on contract negotiations, not labour legislation.
- Scheduling is more flexible for subcontractors, since you don’t have to provide a regular number of hours. You are also not obligated to extend your contract with the subcontractor.
- Subcontractors are typically responsible for providing their own tools and insurance.
You don’t necessarily have to spend on operational costs related to having a full-time employee, such as equipment, office space or vehicles.
- Using subcontractors gives you greater flexibility when it comes to your labour force. You can have several independent contractors recruited for a big project, have regular subcontractors who collaborate with you, or hire an expert for a one-off specialised task.
- Having no or fewer regular employees makes managing the business easier, especially during the early period when your business is either starting up or scaling up.
Of course, there are also perks of hiring part-time or full-time employees once it makes strategic sense for your business. Independent contractors are generally paid a premium since they manage their own equipment, training, transport and benefits. If you have the resources to manage an employee, hiring someone permanently can be a great long-term investment.
Remember, subcontractors are independent businesses, and have an equal role in negotiations. You may develop a great working relationship with a subcontractor, but outside the terms of the contractor agreement, they don’t have a long-term commitment.
On the other hand, investing time and money into training an employee can really pay off for your business. When it comes to employees, you have more control over how they carry out their work and more opportunities for on-the-job training.
Something to be careful about is whether your workers are actually employees or contractors. Having a contract drawn up or supplying an ABN doesn’t override any other aspects of the situation that are more employee-like, and ‘sham contracting’ can land you in trouble. It’s always best to check with a legal professional to make sure you’re sticking to the law with your hiring arrangements.
Sourcing your labour through subcontractors also doesn’t mean you can avoid all workplace and employment laws – be sure to read about rights and obligations towards subcontractors in Australia.
How to Create a Subcontractor Agreement in Australia
A subcontractor agreement is incredibly important should you wish to use subcontractors. Consulting with a legal professional will help you cover all the necessary details when creating the contract itself.
Here are some pointers on creating an effective subcontractor agreement:
- Clearly define the requirements of the project and the desired results. Specifically, outline the part of the project that falls under the responsibility of the subcontractor. It is best to provide details and explanations regarding how this task fits into the project as a whole.
- Include provisions of the agreement, such as due dates, deadlines, work duration, and anything else that’s relevant to delivering the service correctly.
- Clarify your payment terms and methods. Most importantly, agree upon the rate and whether an hourly/daily rate will be paid or a fixed fee for the contract.
- Specify payment timing. Remember, you’ll still need to pay the subcontractor on time even if something goes wrong with your client’s payment, so it’s best not to rely solely on the client’s payment reaching you first.
- Outline insurance obligations for each party. This means deciding whether or not you expect the contractor to be liable for maintaining their own insurance.
- Compose a draft and present it to the subcontractor to read. This gives you and the subcontractor the opportunity to examine, revise, or change the terms to reach a mutually acceptable arrangement.
- Agree on a method to handle disputes if a dispute may arise. Don’t jump automatically to legal action – they’re expensive and you cut ties forever. Disputes can be settled through simple mediation, arbitration, or just agreeing on some solutions beforehand.
- Complete the contract, making sure it has all the necessary information. Both you and your subcontractor should sign the contract.
You can find subcontractor agreement templates online to get you started, but the best course of action is always to work with a lawyer to create a contract that suits your unique business needs.
Want to find out more about the ins and outs of hiring subcontractors? Fair Work Australia has published a fantastic guide to subcontracting labour for small businesses. For professional advice before hiring a contractor, don’t hesitate to talk to a business consultant or lawyer.
Can a Sole Trader Hire a Sole Trader in Australia?
A sole trader can definitely hire a sole trader as a contractor, though only an individual can be an employee, not a business. This can be a great strategic move if you’re a small business who needs more hands on deck, without committing to hiring someone long-term.
Is an Independent Contractor the Same as a Subcontractor?
A subcontractor is essentially the same as an independent contractor. As a contractor, the client is hiring you to fulfil a job – so when your business hires an independent contractor, they are a subcontractor working under a contractor. The same business entity can be both a contractor and subcontractor for different clients.
Disclaimer: This article is published in good faith and for general informational purposes only. Jim’s Plus does not make any warranties about the ongoing completeness and reliability of this information. It does not constitute financial or legal advice, and you should always consult a professional advisor on these matters.