What is a Subcontractor?
A subcontractor is a person or business that you have contracted to conduct work for or on behalf of your business.
Why do businesses use Subcontractors?
Businesses will often engage subcontractors when:
1. They require expertise their business cannot provide
2. They have too much work to manage
Previously, businesses would engage contractors rather than employees so they were offloading elements of risk, these days there are more grey areas and employers can be held responsible for certain classes of subcontractors.
Difference between Employees and Subcontractors
The main difference is that an employee will work in the business, this is generally on an employment agreement and the employer will be responsible for the employee’s superannuation contributions and GST PAYEE. A subcontractor will work for the business and trade under their own ABN and therefore be responsible for their own superannuation, GST and insurance. In some workplace situations, the lines can blur. For example, a person can be a subcontractor for tax purposes but still be deemed an employee when it comes to workers’ compensation insurance - please refer to the workers compensation act in your State or Territory.
Each state and territory has its own rules around differentiating subcontractors from employees. It’s always best to discuss both employees and subcontractors with your workers' compensation insurer, they will provide advice and guidance on whether your subcontractors are deemed employees and should be incorporated within your insurance policy.
Worker to Worker Claims
One of the most common types of public liability claims is a worker to worker claim. worker to worker claims are commonly described as the legal liability resulting out of the risk of personal injury to subcontractors and labour hire employees. Claims of this nature most commonly arise from principals negligence where the injured parties workers compensation insurer may seek compensation from the principal contractors public liability insurance.
In insurance terms, vicarious liability is commonly defined as being held responsible for the actions of others. When you appoint, control, supervise and delegate work to subcontractors, you withhold a level of responsibility for their processes, procedures, controls and actions. The subcontractor is effectively working for and representing your business. If a subcontractor causes damage or injury, it is common for the claimant to also involve the principal contractor in the law suit, for being responsible for their subcontractors. In most cases, this can result in the principal contractor having to pay for a portion of the claim (proportionate liability). If there are no formal checks in place to ensure the subcontractors have current and adequate insurance, this can create issues with insurance, which includes paying for a higher proportion or a claim being declined.
What to look out for
When engaging subcontractors, it is always recommended that the business requests for Certificates of Insurance for Public Liability, Workers Compensation / Income Protection, and any other insurance relevant to your line of work.
Contractor Management Program
If you don’t do so already, it’s recommended that the business implement a contractor management program. This ensures that each year, the subcontractors are updating you with their current and updated Certificates of Insurance and other formal requirements, such as licensing renewals or competence checks.