Secrets to Managing Contractors For Builders

Working with contractors is becoming more and more common as builders seek to find a balance between a number of jobs and deliverables. Hiring a contractor becomes useful for their skills (or tools) but on a short-term basis. This saves costs as compared to a full-time employee plus it gets the job done. How well it gets done is entirely dependent on your hiring skills. We’ve compiled a couple of secrets you can use to effectively manage your contractors in your building business.
Let’s get straight into them.

1. Ensure that you are covered for work cover and superannuation

Employers aren’t required to pay superannuation to just any contractor, but there are types of contractors that require this. These are referred to as bona fide contractors. The trick then is in determining who is, in fact, a contractor.  Simply referring to someone as a contractor will not fit the bill.

Contractors that can provide an ABN might be caught in a superannuation provision but only if they are under a contract that is completely based on labour. When that happens, the contractor immediately becomes an employee for superannuation purposes, then the employer must make superannuation contributions on their behalf. A person who does work through a company won’t be recognised as an employee for superannuation purposes.

The ATO constantly makes checks on businesses to ensure that contractor superannuation provisions are not being imposed on employees. When they do find out that this is the case penalties and further investigation will be put into place.

The decision on whether a worker is an employee, or a contractor is based on the details of their contract. So, the next question becomes, what are the differences or ‘telling features’ between a contractor and an employee according to the ATO? We’ve compiled the following table to make sure that you are in the loop on what these telling features are:

Factor Employees Contractors
CONTROL The builder controls the work the individual performs, hours, location of activity and how the work should be executed. Contractors have control of all the work they perform, their hours, location of activity and how they perform the work.
INTEGRATION The individual works as part of their builder’s business. Contractors often operate on their own terms.
EXCLUSIVITY Workers are on full-time employment Contractors often perform services for several different businesses.
RESULTS’ CONTRACT A full-time contract of employment has been drawn up.  A short-term contract has been created to achieve a specific outcome.
POWER TO DELEGATE The employee does the work that they have been exclusively engaged for themselves The contractor can go on to subcontract another with the required set of skills or tools
COMMERCIAL RISK Workers have little responsibility to correct low quality work with the builder being held responsible.  Contractors are answerable for their own work with liability to correct it should the results be dissatisfactory
PROVISION OF TOOLS AND EQUIPMENT Workers execute their duties using tools and supplies provided to them by their employer and are remunerated for work related inconveniences. Contractors use their own tools and supplies and are answerable to any incurred expenses.
OTHER INDICIA The builder has the right to suspend or dismiss. Workers are also eligible to essential rewards including annual, sick and long service leave.  


2. Ensure that the contractors are registered for GST

GST (Goods & Services Tax) is compulsory for bona fide contractors. As sole traders, they have different obligations for super and tax that must be tended to as advised by the ATO.

Apart from showing proof that they are registered for GST, your contractors should also be able to provide an ABN number. If not, you have the right to withhold 47% of their full payment and make it known in your annual PAYG payment summary.

3. You need to confirm that you are not sham contracting

Drawing up contracts that have false information will cost your business once the partnership is zoomed in on by the ATO. When making contracts with contractors ensure that you have correctly stipulated their status: Employee or Contractor. The table above will help you figure out which feature applies for each but the ATO has also offered a ‘‘decision tool” to best calculate what your contract should entail. This tool is not intended to be used for individual workers, labour-hire firms or drivers gaining income from ride-sourcing connections.

How you use the decision tool is simple. You will be required to accurately respond to some questions about the working arrangement between you and your workers, both contractors and full-time employees. After you’ve completed this process, you will receive a report that states whether your worker is either an employee or a contractor and this information will be used for tax and super purposes. The report will also outline the superannuation and tax obligations you will need to fulfil.

Please note that the tool is always anonymous and will not store the information that you share with it or the answers you would have selected.

4. Prepare your subcontract agreements

Working with sub-contractors can be quite helpful in preventing your business from accumulating debt. It does make a HUGE difference, however, to put enough effort into putting your sub-contractor agreements in place first. These contracts make sure that your subbies are in the loop on what their obligations are on a project.

Before any work starts, these documents must be discussed then settled in form of signatures. They’ll have information ranging from the nit-pick details of the project, confidentiality, responsibilities, attitudes and personalities, payment, insurance, policies and procedures, customer expectations, termination, and other legal guidance.

Book a consultation with us to determine whether there are other issues that will affect your business. Tradies Accountants.

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