As your trade business grows, one of the biggest decisions you’ll need to make is whether to take on employees or use subcontractors. Learn the pros and cons of hiring employees vs subcontractors — and how we can help you manage both.

1. There is a Legal Difference

It all comes down to the legal relationship between the company and the worker. 

  • Employees are part of your business. They’re getting paid a salary or wages and are entitled to benefits like sick leave and holiday pay, usually paid through the PAYE payroll system and taxes such as PAYE, Kiwisaver & others are deducted from their pay – you pay the Employee the Net, you pay the IRD the Tax.
  • Subcontractors are running their own businesses. They’ll invoice you for work they do and may subcontract to other businesses. They may or may not be GST registered, this is important to know at the outset, as you can only claim the GST if you are GST registered and so are they – either way you still get the income tax deduction or ‘claim’

2. The pros and cons

Subcontractors – For subbies, it means you’re working for yourself. If you’re hiring subbies, it can be a lower-risk way of getting more people on the team, as you are more free and easy to hire and fire, when a person is locked in to an employer employee relationship, and a contract – it needs to be a more considered approach when hiring and firing.

  • If work slows down, you don’t have to keep paying someone’s salary when there’s nothing to do.
  • If the subbie 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 have enough people on the job at each given time.

Employees – Taking on employees is a big step. You’re not just committing to paying their wages or salary every week or 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 superannuation schemes, among other benefits. You will 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.