Business Productivity

Outsourcing: Beware the contractor vs employee trap

- November 6, 2018 4 MIN READ

I had visions of hiring remote contractors right across the country. Unfortunately, that’s easier said than done.

If you’re flying solo, you know how hard it can be when the work piles up and the phones keep ringing – with no end in sight, and no one to share the load.

Eventually, the inevitable question arises: should I bring on someone to help?

This was a question I grappled with for a number of years. Having worked alone for the better part of a decade, I wasn’t sure how I would handle managing other people to deliver the work.

I’d also developed what I call the freelancer ego: that little voice in your head that has kept you going all these years, and convinces you that no one can do what you do quite the way you do.

But, at the end of the day, my decision came down to three factors:

  1. I wanted the capacity to help every client, whenever they need it.
  2. I had decided to try and regain just a little work/life balance.
  3. I wanted to help more people work from home. I’m a huge advocate for remote working, and rather than just talk about how to do it, I wanted to offer the work that would enable it.

I also decided to leave my ego at the door. I am certainly not the only one who can do what I do. There are talented writers and editors everywhere – many who don’t even realise how brilliant they are. And with the right brief and approach, I knew they could absolutely help me carry the load.

Bring in the contractors

The second I decided to fly with others, I started conjuring up grand visions of what life would be like. I’d have a collection of 10 contractors – working from anywhere in the country – who I could send work to whenever I wanted.

If there was no work to give, I wouldn’t send it. If someone wasn’t working out, I wouldn’t contract them anymore. No mess, no fuss.

With a little effort I started getting my sh*& together, ready for this new way of working that was going to revolutionise my life and my business.

And then I talked to my accountant. 

Contractor or employee?

While it had traditionally been seen as a grey area, apparently the ATO had decided to crack down on what constitutes a contractor. A Four Corners episode on the subject had scared the daylights out of many, with stories of ABNs being cancelled and people’s livelihoods put at risk.

Thus began a journey that took me countless hours and thousands of dollars to get some real answers. I spoke to two specialist employment lawyers and two accountants. I called Fair Trade, and used the ATO’s online contractor vs employee tool.

At the end of the day, the verdict was unanimous: even though the people I wanted to contract were already freelance writers with their own ABNs, they would have to come on as employees. 

Here’s what it came down to: 

Reasonable expectation of ongoing work

Because I planned to outsource regularly, the writers had a reasonable expectation of ongoing work. Employee.

My business gets the credit

If I am not putting their business name out there, then it is my business that gets the glory. Employee.

I am responsible for the outcome

If a client doesn’t like the work, I am responsible. Employee. 

I am not a labour hire company

Labour hire companies operate under different laws – this is why there are some companies that can have a revolving door of contractors. I am not a labour hire company. Employee.

I can do what they do

If I was a builder, I would need to bring in a specialist plumber, electrician, painter, etc. to deliver the job. This is a perfectly good use of contractors. But because I have expertise in the same thing they do…yep. Employee. 

Bring in the employees

Once I knew where I stood (and discovered the cost of getting it wrong was more than I was prepared to lose), I set out to bring on my favourite freelance writers as employees. Unfortunately, there was also a crap load of bureaucracy in this too.

First, I needed a lawyer to draft an employee agreement. Then, I needed new Terms and Conditions that moved everything away from “me” to “we”. Then, I needed my bookkeeper to register for PAYG, and collect bank and super details, etc.

None of that bothered me…until I got to workers compensation. Every state has different workers compensation laws, and you need to cover them in the state they work in. For me, this meant ringing ACT, NSW and Victoria bodies to find out how to get cover.

Finding an insurance broker who can offer workers comp for all states is near impossible, so you end up with 2 or 3 separate workers comp invoices. 

Is it worth it?

After having been through all this, I wanted to share my story because there’s no doubt thousands of flying soloists who will grapple with this same situation. If I can save you any time (and money) helping you figure out what needs to be done, it’s worth its weight in gold.

As to whether it’s worth it for you, it really comes down to one question: 

Where do you see yourself in 5 years?

Bringing on employees has its teething problems. But once you get through the stack of paperwork, it’s done. And you can start building your business around a new way of operating that includes others.

If you’re leaning further to the other side of the fence where you continue to go it alone, that’s absolutely fine too – but at least you can make an informed decision about the road that lies ahead.

Maybe one day we can all rally together and push for change. Cut a little of the red tape for small businesses in this country, and make it easier to give work to those who really want it and couldn’t care less about what you call them.