As your electrical business grows, you'll face the decision of how to bring on additional help. Should you hire employees or use subcontractors? The answer isn't always straightforward, and getting it wrong can have serious legal and financial consequences. This guide breaks down the differences to help you make an informed decision.

Key Differences at a Glance

Factor	Employee	Subcontractor
Control	You control how, when, and where they work	They control their own methods
Tools/Equipment	You typically provide	They provide their own
Hours	You set their schedule	They set their own hours
Tax	You deduct PAYE/PAYG withholding	They handle their own tax
Super/Retirement	You pay superannuation/401k	They handle their own
Leave	You provide annual/sick leave	No leave entitlements
Insurance	Covered by your workers comp	They need their own insurance

When to Hire an Employee

Consider hiring an employee when:

You need consistent, ongoing help
You want to control how the work is done
You need someone available during specific hours
You want to build a long-term team
The work is core to your business operations
You want to train someone to your standards

When to Use a Subcontractor

Consider using a subcontractor when:

You have fluctuating workload
You need specialist skills for specific jobs
The work is project-based or temporary
You want to reduce administrative burden
You need flexibility to scale up and down
The person has their own established business

⚠️ The Danger of Sham Contracting

What is Sham Contracting?

Sham contracting is when you treat someone as a subcontractor when they should legally be an employee. This is illegal and can result in significant penalties.

Warning signs you might be doing it wrong:

• They only work for you
• You control their hours and how they work
• They use your tools and equipment
• They wear your uniform
• They can't delegate work to others

How Regulators Determine Status

Tax authorities look at several factors to determine if someone is truly a subcontractor:

1. Control

How much control do you have over how, when, and where the work is done? More control suggests an employment relationship.

2. Integration

Are they integrated into your business? Do they appear to be part of your team to customers?

3. Commercial Risk

Do they bear financial risk? Subcontractors should have their own insurance and be responsible for their own profitability.

4. Independence

Do they operate their own business? Do they have an ABN/Business Number, website, and other customers?

5. Tools and Equipment

Do they provide their own tools and equipment, or do you provide everything?

Making the Decision

Consider these factors:

Cost Comparison

While subcontractors charge more per hour, remember that employees come with additional costs:

Payroll tax (if applicable)
Workers compensation insurance
Superannuation/retirement contributions
Leave entitlements
Training and equipment costs
Administrative overheads

Flexibility Needs

If your workload fluctuates significantly, subcontractors offer more flexibility. If you have steady, ongoing work, employees may be more cost-effective.

Control and Quality

Employees allow you to maintain strict quality control and train people to your standards. Subcontractors work independently.

Best Practices

Get it in writing: Have clear contracts that reflect the actual working relationship
Be honest: Don't misrepresent the relationship to avoid tax or obligations
Review regularly: Relationships can change over time
Seek advice: If unsure, consult an accountant or employment lawyer
Check with tax authorities: Most have online tools to help determine the correct classification

Converting from Subcontractor to Employee

If you realise a subcontractor should be an employee, it's best to make the change proactively rather than waiting for a regulator to find out. This shows good faith and can reduce penalties.

Subcontractor vs Employee: What's Best?