By Greg Allan, tradesman and creator of Data First Coaching
Why do waterproofers get this question wrong so often?
A waterproofing business usually runs on a mix of its own crew doing membrane work in wet areas and on balconies, plus people brought in: a flood test certifier for the certificate, another waterproofing crew covering an overflow of new build jobs, or a tiler and builder sending the work across. It is easy to assume anyone who invoices is a subcontractor and anyone on wages is an employee, but according to the ATO, the label used in a contract does not decide how the relationship is actually treated, and having a registered business name or an ABN does not change the answer either. Difference between employees and independent contractors
This question is about Australian rules. A waterproofing business operating in New Zealand works under a different employment relationship test run by Employment New Zealand, so the detail below should be checked against that system instead of assumed to apply.
What actually decides if someone is an employee or a subcontractor?
The ATO weighs up the real terms of the arrangement: whether the worker can delegate or subcontract the job to someone else, how the payment is worked out, who supplies the equipment such as membrane rollers, primers and flood test gear, who carries the commercial risk if a job fails inspection and needs rectification, and who controls how, when and where the work is done. A membrane installer who must do the work personally, uses the waterproofer's gear, gets paid for time and takes direction on which bathroom or balcony to do next looks like an employee, even if invoiced. A crew that can send someone else, quotes a fixed price and carries its own risk on defects looks more like a genuine subcontractor. Employee or independent contractor
Getting this wrong on purpose has a name. The Fair Work Ombudsman calls it sham contracting, misrepresenting an employment arrangement as a subcontractor arrangement, and says employers who do it can be penalised. Independent contractor changes
What does this mean for the gross profit on a flood test, remedial job or new build membrane?
However the labour is classified for tax purposes, if the person doing the membrane work, the flood test or the remedial fix is the one actually delivering the job, their cost belongs in cost of sales, not overhead. It makes no difference whether you pay a wage or pay a subcontractor's invoice. The moment that cost gets booked as overhead because it feels different to record an invoice than a wage, every job's gross profit looks better than it is, and the gap between the numbers and what lands in the bank widens without an obvious reason.
Picture a waterproofer who keeps losing sleep over why jobs that should be profitable, a balcony rectification, a shower remedial, a new build wet area membrane, never seem to leave much once invoices are paid. The business could not get an honest figure for its true cost of operations. Non-billable hours, quoting, call backs on defects and chasing certificates were loading a flat overhead onto every job, so every job looked like it was losing money. Stripping that overhead out made the figure drop so low it was obviously wrong too. An AI agent, software that does a job the way the owner would, with the owner's own prices, wording and rules, pulled the actual wages, subcontractor invoices and overhead straight from the business's live data and worked out the real cost of operations with billable hours properly factored in. Overhead and non-billable time now sit in their own bucket instead of being spread across jobs that had nothing to do with them, and the agent keeps that costing accurate as the mix of crew and subcontracted trades changes from job to job.
What about workers compensation and payroll tax for subcontracted waterproofing crews?
Being a contractor for tax purposes does not automatically make someone a contractor for every purpose. In New South Wales, the regulator SIRA points out that a worker can be a contractor under tax rules and still count as a deemed worker for workers compensation insurance, because different tests apply, and a principal contractor can be liable for a subcontractor's workers compensation premiums unless it holds a written statement confirming the subcontractor has its own cover. Worker or contractor status tool
Payroll tax can work differently again. RevenueSA explains that a business can be deemed the employer of a contractor under a relevant contract for payroll tax purposes, with exemptions available depending on how the work is structured. Rules like this vary by state and territory, so a waterproofer working across more than one state, or bringing in a flood test certifier or crew from interstate, should check the position with the regulator in each state rather than assume one applies everywhere. Contractors
This is general information, not legal, tax or employment advice. Check your own situation with the body named here or a qualified adviser.
How can AI agents help a waterproofing business keep this straight?
You do not want to be working this out from memory at the end of the quarter, trying to recall which jobs used your own crew and which used a subcontracted waterproofing team months back. The data first way is to let your own job records answer the question as the work happens. An AI agent, software that does a job your way, with your prices, wording and rules, can read your job and pay data as it comes in, flag whether a cost belongs in cost of sales or overhead, and keep subcontractor invoices and wages sitting against the right job.
That matters because the classification question and the costing question are really the same question asked twice. If the records are clean as jobs happen, both answers come from the same place, and you are not reconstructing it under pressure later.
Where can you check the current rules?
- Difference between employees and independent contractors - the ATO's main test, including what a contract's label does not decide.
- Employee or independent contractor - a comparison of delegation, payment, equipment, risk and control.
- Print whole section: Employee or independent contractor - the ATO's myths page, covering ABNs, business names and invoicing.
- Worker or contractor status tool - SIRA, New South Wales, on workers compensation status, which can differ from tax status.
- Contractors - RevenueSA on when a business is deemed the employer of a contractor for payroll tax.
- Equipment, tools and other assets - the ATO on who provides the gear and what that means for the test.
- Independent contractor changes - the Fair Work Ombudsman on sham contracting.
- Contractors in building and construction - the Fair Work Ombudsman's guide for the building and construction sector.
How does Data First Coaching approach this?
Data First Coaching, built by Greg Allan, starts from the waterproofing business's own job and pay records, not from a checklist. The Trade Business Intelligence reads what is actually booked against each wet area, balcony, remedial and new build job, alongside ten years of coaching trade businesses, to find where a costing or classification problem really starts, whether that is how subcontractor invoices are coded, how overhead gets spread, or how a working relationship was set up in the first place. The how, the systems that keep that booking right every week, is worked through inside the Academy, with other members, because the Trade Business Intelligence is powered by every member and the Academy is for owners who are open minded, innovative and willing to share what they learn.
