What You Should Know Before Engaging a Contractor

Posted by Jeremy Innes on 12 October 2017 Comments

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You may think you know your workforce, and you may think that yours is unique, but there is one constant, which you will find across every construction environment across the country: contractors. The construction industry would be very, very different without them. From labourers to Project Directors, many of the industry’s most highly skilled professionals don’t stay in one place for long.

Many employers are hesitant about engaging contractors, but much of this is down to having a misinterpretation of what a contractor actually is and how best to utilise them. There is a common perception of contractors being very costly, and essentially operating as mercenaries within their sector. However, while it’s true that contractors do often command a higher price, they play a huge role in our industry and can be a massive help to your business - especially when it comes down to fulfilling your project requirements without giving yourself a future headcount problem

Know What You Need and Why You Need It

JeremyInnes List2Ramp up and close out phases are typically the most popular times to engage contractors, with organisations adjusting for peaks and troughs in workload, as well as engaging strategic specialists where needed. They can also be used for positions that may fall outside of your standard business operations (e.g. where you may otherwise pay premium rates to a subcontractor) or for positions that are hard to absorb into non-project activities through softer periods (such as Site Inspectors and/or Health & Safety and QA field staff).

Once you know what you need, allocate finances and other resources. Talk to your Recruiters or partners to ensure your thinking and budgets are set according to the market forces. Understand what it is that you are actually paying for! Seek transparency of what is included in the rate and you will quickly realise that the agency’s mark-up is not just a fat juicy profit margin. Payroll Tax, Insurances (Workcover, PI and PL), superannuation are statutory requirements – these figures are usually taken care of by our accountants (for perm staff) so we when they’re itemised so transparently they sometimes look foreign…and expensive. On a side note, if your agency can’t provide appropriate context around these costs and variables then be slightly alarmed – you do not need the ATO or Workcover on your case for lack of compliance.

Embrace that sometimes contractors are expensive, but paying that higher price can come with its advantages. You often lack the luxury of time to develop someone into a role, you need a finished article who can hit the ground running and deliver your project. That may come at a price but may result in a considerably more profitable project (or, dare I say it, arrest the losses on a broken one). Now, this a really important consideration and one that we see regularly; the company then keeps the highly paid contractor on a long term basis because they become comfortable with having them around. If they have delivered a great project outcome and you see a long term future for them then confront permanent discussions with them as soon as possible. The longer they remain as a contractor the less likely that you will ever convert them. You will continue to pay over and above for their service, and you will re-emphasise your own perception that contractors are indeed mercenaries.

Respect that there is also a risk involved for the contractor, with shorter term engagements creating income continuity issues. combined with their lack of pay for sick days, public holidays or annual leave. These are all factored into their rate which also contributes to the common misconception that they are expensive. Annualise these rates and consider the real employment costs of your perm staff and you may be surprised by what you find.

Make sure your job advertisement (or brief if you’re talking to agencies) reflects what you need and is appealing to the candidates you’re after, but keep in mind that some of the best contractors are often identified through networks. Recruiters have great talent pools of contractors, most of whom have already been vetted or have worked for them previously with other companies, and are thus a known quantity.

Terms of Engagement

Contractors are usually engaged for three to twelve months, so it’s a very different landscape from hiring a permanent employee. Shorter-term deals often come at a premium, with someone joining for 3 months likely coming at a more expensive rate than those with greater work security. Your process for hiring does not necessarily need to change, but may require some fine tuning to reflect the fast-paced nature of the contracting market. Wait too long, or take too long in your process and it is likely you will miss out on the resource you need. It’s a competitive market out there so don’t just assume that there is an unlimited supply of your required expertise that can be turned on and off like a tap.

Understand the legal intricacies – especially the definition of what constitutes an “employee” versus a “self-employed contractor”. Getting it wrong can be an expensive mistake. Ensure you look at available resources to ensure you have it right. Sites like Fairwork Australia or the Employment New Zealand website are a good start. Other issues like handling grievances or disputes will be different when dealing with an employee or a contractor. To shed a little light on these differences, this is a nice little introduction.

You should also understand a contractor’s (or the agency through whom you’re engaging a contractor) degree of compliance. This includes level of insurances, onboarding, and management of Health & Safety. Understanding all parties’ responsibilities is crucial. Where possible, seek transparency into what you’re actually paying for on a total cost basis.

It’s also important to not just assume that there is a wide-spanning pool of contract talent, all available and ready to go if you need them to start on Monday. It can often be tempting to use contractors as an alternative if you cannot find a permanent candidate for the role, however, if you’re turning to contractors because you can’t find the right talent, then it's probably best you soften your expectations accordingly. If you need someone as soon as possible, then it may be a good idea to make your criteria less strict, with the contractor potentially only being a short-term solution in any case. They may well demonstrate outstanding skills in which case you can typically hire them on a temp-to-perm basis in the future.

Closing Thoughts

As our world evolves and the “gig economy” keeps building momentum, contractors will likely form part of your team, providing the necessary expertise you require to achieve your goals.

Without contractors, the workforce would not look the same, nor would it be as effective. At RobLawMax we understand the intricacies of the construction market, both permanent and contract, so if you are stuck in a quandary as to which way to lean in your Recruitment efforts, reach out to us, we will be happy to chat.

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