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Subcontractors vs Employees - What is better for my construction business?

Subcontractors vs Employees - What is better for my construction business?

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As you grow your construction business, one of the biggest decisions you’ll need to make is whether to take on employees or use subcontractors. The same goes if you’re just starting — should you employ someone directly or just use a subby? Both have their pros and cons — it all depends on what best suits you and your business.

1.  Would they actually be a part of my team?

Owners of construction businesses may refer to their “team” or their “men” whether they’re subbies or employees. That’s because, on a day-to-day level, it can feel like there’s no difference between the two – they might work with the same subbies regularly, involve them in team catch-ups and may even have their bios on the company website. 

 

So what is the actual difference between a subby and an employee? Well, it all comes down to the legality of the relationship between the company and the employer.

  • Employees are a legal part of your business. They’re getting paid a salary or wages and are entitled to benefits like sick leave and holiday pay, you pay the national insurance and they are legally working for your company/
  • Subcontractors are running their own businesses. They work on a disconnected basis, they’ll invoice you for work they do and you are "technically" their client that they are performing work for.

 

 

2. The pros and cons of subcontracting 

Subcontracting is extremely popular in the construction industry. You are essentially employing another business to complete work under your arm. If you’re hiring subbies, it can be a lower-risk way of getting more people on the team. 

 

Subcontracting is a great way to start a construction business.

  • If work slows down, you don’t have to keep paying someone’s salary when there’s nothing to do.
  • If things don't work out with the subcontractor and he turns out to be a bad egg, you can just say goodbye. 
  • If subbies are sick or injured, you don’t have to cover their time off. 

 

 

But that no-strings relationship goes both ways. 

Subcontractors don’t have to take work if they don’t want to, and could even be competing for the same projects. Hiring subbies means you don’t know if you’ll always have the right people when you need them. They’re also likely to be using their own systems, which may clash with yours. 

It can make things messy and add to workloads if everyone is working slightly differently. You also don’t have as much control over how your subbies behave on-site or the quality of their work – you’re trusting your reputation to people who can just move on to the next job if things go wrong.

 

 

3. The pros and cons of having employees 

Taking on employees is a big step. You’re not just committing to paying their wages or salary every month, but you also have a legal responsibility for their health and wellbeing, professional development, behaviour and paying taxes on their behalf. They’ll be entitled to sick leave, paid holidays and contributions to national insurance, among other benefits. 

 

That might seem like a lot, but having employees also has its upsides. You get true commitment and loyalty so you know exactly how much work you can take on. You can also train them in your way of doing things – both in your systems and your culture. That makes a massive difference to how efficient you can be and means customers get consistent, high-quality service. 

 

We have also seen construction businesses that work through subcontractors, yet they are loyal to the main contractor, although they have no legal bound to be.

 

4. Insurance – what you need to know

As with contracting roles in any industry, subcontractors are not employees. If you’re a subcontractor, you need insurance while on the job and you’re responsible for your admin – think tax, payroll, social security, licensing.

 

Looking at hiring or working as a subcontractor? Make sure you’ve got these bases covered:

  • Check subcontractors have relevant certification and licenses required.
  • Ensure they have current Certificates of Insurance to verify their insurance coverage.
  • As a subcontractor, you should have liability insurance to protect you against any damage to people or property as part of the contract you’ve undertaken.

 

5. CIS vs PAYE

When you are looking to take on an extra member there’s two ways to go, Construction Industry Scheme (CIS) or Pay As You Earn (PAYE). When you employ someone, you will need to register for PAYE, this will give you extra responsibilities such as a monthly PAYE return, pensions, Income Tax, National Insurance and ensuring the right forms are given to your employees such as a P60.

When it comes to CIS, thing are a little bit simpler… the person will likely be self-employed (they can be a limited company). With CIS, you will also have to be registered as a CIS contractor so you can work with subcontractors. You will be required to verify all new sub-contractors and this will tell you what % will need to be deducted from the invoice - Higher is 30%, Standard is 20% and Gross is 0%. These deductions have to be reported and paid to HMRC once a month and you will be required to issue a monthly Statement of Deductions to the subcontractors, this shows how much has been deducted from them by HMRC and paid over on their behalf by you.

Overall they are both not straight forward schemes and this is something your accountant can carry out for you to ensure your compliance needs are met. Take a look at our CIS Knowledge Hub for more information.

6. Flexibility and freedom vs reliability and consistency 

The difference between a subcontractor and an employee comes down to flexibility versus consistency. 

 

With employees, you get a consistent team committed to your business. 

 

With subcontractors, you get the flexibility to pay them only when you need them. 

 

Your choice between subcontractors and full-time employment is all dependent on the current situation of your business and the goals that you have. 

 

Is this a sudden influx of work that you are wanting to cover for a short period or is there a consistent flow coming in? How reliable do you need your team to be, is it an “as of when I need you basis” or daily? 

 

You can still have subcontractors for daily use, however, it’s all dependent on the relationship that you have. 

 

 

Both employing and subbies are a great way to advance in your business, even if you take on a subcontractor, maybe someone who is a one-man-band, they can still make the decision to come on as an employee in the future. 

If you would like any help with this feel free with us here - We would be more than happy to give some free advice! 

This article was written for Construction Insider and Saint Financial Group. Saint is a multidisciplinary group based in the UK that helps construction businesses develop and grow. SaintFG offers a range of quality solutions in supporting businesses.

Saint provides the luxury of free business consultancy for all of our clients, call now for your free consultation with a friendly business advisor to discuss your burning questions and put that energy back into your business!

Written by:

Michael O'Rourke MAAT

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