Key Takeaways
- Subcontractors offer flexibility and lower overheads for seasonal or specialised work
- Employees build long-term value, culture, and reliability but come with higher fixed costs
- The “tipping point” usually occurs when you have a consistent 35+ hours of work per week for a specific role
- Understanding your “true cost” (including super, insurance, and downtime) is essential for making the right choice
- Mixing both models can provide the stability of a core team with the agility to scale for large projects
As your trade business grows, you eventually reach a crossroad. You have more work than you can handle, but not enough hours in the day to do it all yourself. To scale, you need more “hands on tools.”
The big question for most Australian tradies is whether to hire a permanent employee or engage a subcontractor. Both have their place, but choosing the wrong one at the wrong time can either stall your growth or bleed your cashflow dry.
The Case for Subcontractors: Flexibility and Specialisation
Subcontractors are often the first choice for growing businesses because they represent a “variable cost.” You only pay them when there is work to be done.
The Pros:
- Lower Overhead: You generally don’t pay for their vehicle, tools, workers’ compensation, or superannuation (though you must check the ATO “Employee vs Contractor” tool to be sure of your obligations).
- Specialised Skills: If a project requires a niche certification you don’t use every day, a subbie is the perfect solution.
- Ease of Exit: When the project ends or the pipeline slows down, the financial commitment ends.
The Cons:
- Higher Hourly Rates: You pay a premium for that flexibility.
- Lack of Control: You can specify the result, but you have less control over how they do the work or which jobs they prioritise.
- Brand Risk: They aren’t “your” team. Their presentation and work quality reflect on your business, even if they aren’t on your payroll.
The Case for Employees: Stability and Scalability
Hiring an employee is a commitment to the future of your business. It is the most effective way to build a brand and a consistent culture.
The Pros:
- Lower Hourly Cost: Over the long run, the hourly rate of an employee is significantly lower than a subcontractor.
- Loyalty and Training: You can invest in their skills, and they become a repository of “how we do things” in your specific business.
- Availability: They are there 7:00 am to 3:30 pm, Monday to Friday. You aren’t competing with other builders for their time.
The Cons:
- Fixed Costs: You must pay them regardless of whether the phone is ringing.
- Compliance Load: You take on PAYG withholding, Super Guarantee, WorkCover, and leave entitlements.
- Management Time: Employees require leadership, performance reviews, and administrative support.
Identifying the Financial Tipping Point
How do you know when to make the leap from subbie to staff? Look for these three signs:
1. The 35-Hour Rule
If you are paying a subcontractor for 30 to 40 hours of work every week for three months straight, you have reached a tipping point. The “flexibility” of the subbie is no longer a benefit because you aren’t using the downtime; instead, you are simply paying a higher hourly rate for a permanent role.
2. The “True Cost” Comparison
When comparing costs, don’t just look at the hourly rate. An employee who costs $45 per hour actually costs the business closer to $60 to $65 per hour once you factor in superannuation, insurance, and leave. If a subcontractor is charging $90 per hour, the difference is the price of flexibility.
3. Client Experience Gaps
If your growth is being hampered because you can’t guarantee a start date to a client because you’re waiting on a subbie’s schedule, it is time to hire. Lost opportunity cost is a silent profit killer.
The Hybrid Model: The Best of Both Worlds
Many successful trade businesses don’t choose one or the other; they use both. They build a “Core Team” of permanent employees for baseline labour and a “Scalable Layer” of subcontractors for surges or specialised tasks.
Final Thoughts
Scaling is about managing risk. Subcontracting is a great way to “test the waters” of growth. However, to build a business with real sale value, you eventually need a team that is dedicated solely to your vision.
Need help crunching the numbers on your next hire? Speak to Toyne Accountants about a labour cost analysis to ensure your growth is profitable.
