Subcontractor Compliance Verification Risk for Builders

What it is

An unverified subcontractor is a liability the builder has already accepted without pricing it. The subbie turns up, does the work, invoices and leaves. The exposure stays behind.

No single law says verify your subbies. The exposure is assembled from separate regimes, and each one puts the consequence on the head contractor rather than on the subcontractor who caused it. Licensing, workers compensation, work health and safety, payroll tax and the Fair Work Act each contribute a piece. The failure mode is always the same: a folder of certificates that were current on the day they were collected and never checked since.

Licence currency and class

A head contractor can be liable for permitting unlicensed work. In Queensland, section 42 of the QBCC Act 1991 catches a person carrying out building work outside the licence they hold, so a builder who subcontracts a scope nobody on site is licensed for has a broken contract chain.

Three checks, not one:

• Currency. Is the licence live today, not on the day it was scanned.
• Class. Does it authorise this scope. Waterproofing, structural landscaping, demolition and asbestos removal are separate authorisations in most jurisdictions.
• Entity. Is the licence in the name of the company on the invoice, or only in the director personal name.

Public liability and the interested party question

Ask for the certificate of currency, then read three things: the limit, the expiry date and the named insured.

A subbie 5 million dollar limit does not help on a job where the builder has warranted 20 million dollars to the principal. A policy in the name of a related entity is worth nothing. Where the exposure justifies it, get the builder noted as an interested party on the subbie policy, which gives the builder standing on the claim.

Workers compensation and the deemed worker problem

This is the one that costs money quietly. In most states, if a subcontractor holds no workers compensation policy, the principal contractor policy is deemed to pick up that subcontractor workers. In NSW, section 175B of the Workers Compensation Act 1987 makes the principal contractor liable for the subcontractor unpaid premium unless the principal holds a written statement from the subcontractor covering every period of the contract. Where the subcontractor is uninsured, the amount payable can be double the premium.

So an uninsured subbie injured worker becomes a claim on the builder policy. The builder claims experience carries it. The builder premium rises for years. The subbie is long gone.

An ABN is not a shield either. A person can be a contractor for tax purposes and a deemed worker for workers compensation premium purposes, because different legislation and different tests apply. SIRA publishes a worker or contractor tool in NSW for this reason.

Safety documents before work starts

Under the model WHS Regulations, a safe work method statement must be prepared before high risk construction work begins, and the subcontractor doing the work must give the principal contractor a copy. Collecting the SWMS after the first day is not compliance. It is evidence of the opposite.

Alongside it: general construction induction training (white card) for every worker before they step on site, recognised Australia wide. High risk work licences matched to the plant, such as forklift, rigging, scaffolding or crane. Registration and pre-start records for regulated plant.

Payroll tax and sham contracting

Payments to a subcontractor under a relevant contract are taxable wages for payroll tax unless a contractor exemption applies, and the exemptions are narrower than builders assume. A revenue office audit can reclassify years of subcontractor payments as wages, with interest and penalties. The bill lands on the builder.

Section 357 of the Fair Work Act 2009 prohibits representing an employment relationship as an independent contracting arrangement. A subbie with one client, the builder tools, the builder direction and no right to delegate is not a contractor, whatever the invoice says.

What to do about it

Build a subcontractor compliance register. One row per subbie, one column per document, one expiry date and an automated reminder 30 days out. Hold all of it before the first day on site:

Document	What you check
Contractor licence	Number, class, entity, expiry
Public liability	Limit, named insured, expiry, interested party
Workers compensation	Currency plus a written statement
SWMS	Received before high risk work starts
White cards and HRW licences	One per worker, matched to the plant

Then run a no-certificate-no-site rule, absolutely. The first time a subbie is waved through with an expired certificate because the concrete is booked, the register stops being a control and becomes a filing cabinet.