In the construction sector, working as a subcontractor is a common choice.
Many tradies will finish their apprenticeship, work for a few years as a subcontractor, and then strike out on their own.
Why do it? Subcontracting to several builders rather than working for one gives some people more money, more independence, and possibly a little more diversity.
While the transition from salaries to subbie is very simple, there are a few things to consider before making the jump. This guide will take you through the steps you need to follow to become a subcontractor.
1. Examine your credentials
It may appear self-evident. If you aren’t a qualified trade 24 hour plumber in Cincinnati, you won’t be able to work as a plumbing subcontractor, right?
However, it’s worth checking into because several trades have distinct standards when transitioning from being an employee of a contractor to being your own contractor.
To get a Queensland electrical contractors license, for example, you’ll need more than just your trade certification; you’ll also need to complete a few extra modules.
Even though this is a rather clear step, you must complete it before proceeding.
2. Create an organizational structure for your business.
As a subcontractor, you’ll be working for yourself; thus, you’ll need to register as a business.
Many subbies begin as sole traders since it is the simplest option. To start your own business, you only need an ABN (Australian Business Number). You must additionally register for Goods and Services Tax (GST) if your annual revenue is expected to exceed $75,000.
While working as a sole trader is quick, inexpensive, and simple, it does not provide the same amount of security as working as a Pty Ltd. Because you and your business are one and the same as a sole trader, this is the case. It is you who is being sued, not your company. Business loans and other financial problems are the same way. If you do set up on your own, take the time to thoroughly insurance your small business insurance requirements and how you can protect your business and assets.
Setting up a corporation has higher upfront and continuing expenditures, but it also provides you with additional protection and tax planning flexibility.
You and your firm are two distinct entities when you form a corporation. If your company is sued or has debts, they belong to the company, not to you personally. There are occasional exceptions, particularly if you have done something wrong, but in general, there is a distinction between your company and personal concerns.
A corporation structure also gives for more tax planning flexibility. You can use a variety of revenue sources, including wages, dividends, director fees, and more, to maximize your tax savings. As a sole trader, you don’t have these alternatives at your disposal.
A family trust is the last of the common company structures to consider when becoming a subcontractor. For more detail on this, we recommend discussing your options with an accountant, but it can provide even greater asset protection and tax planning benefits.
Getting your business structure right from the start will save you time and money in the long run, so consult your accountant for guidance before going too far.
3. Check Your Licensing Requirements
In order to negotiate with others, you may need to obtain a license, depending on the trade you’re in.
In most Australian states, plumbers and electricians are the two principal trades that require a license. If your trade requires licensure, we recommend contacting the appropriate government in your state. The applicable department is usually the Office of Fair Trading. However, they have slightly varying names from state to state.
4. Put Commercial Insurance in Place
In many ways, once you become a subcontractor, you are on your own.
If you work for someone else, you will be covered by your employer’s insurance if you cause property damage or physical harm to a third party. As a subcontractor, though, you’ll be on your own and potentially liable for hundreds of thousands of dollars in the event of a major lawsuit.
As a result, public liability insurance can be invaluable for subcontractors. This insurance will save your bacon if you cause property damage or physical harm to a third party due to your negligence.
Public liability insurance is required for some trades (electricians and plumbers in particular), and many builders demand that all subcontractors on site have their own insurance.
Another problem once you’ve switched from pay to subcontracting is that you won’t have access to sick leave or workers’ compensation, depending on your state and business structure.
You’ll be fully on your own if you can’t work due to injury or illness. For any self-employed tradie, income protection insurance is essential.
When you are unable to work due to injury or illness, income protection can cover you for up to 75% of your income over the period of time outlined in the contract.
There are many different types of tradies insurance available, but public liability and income protection are two of the most critical when starting out as a subbie.
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