So, the work in your subcontracting agreement is complete. You think all that is left is the payment. But if you are not careful about complying with the statutory requirements for subcontractor statements, you could face increased liability. So, what is a subcontractor statement and why do you need to know about them?
In New South Wales, “subcontractor statements” refer to written contracts that subcontractors provide to their principal contractors. They apply to specified periods of subcontracted work. Subcontractors declare through their subcontractor statements that they have met their insurance premium payment, payroll tax payment, and remuneration obligations. If a principal contractor does not receive a subcontractor statement, they might face liability for the subcontractor’s obligations. Subcontractor statements refer to the following three statutes:
You can find an example of a subcontractor statement here.
According to section 175B(2) of the Workers Compensation Act 1987, “[t]he principal contractor is liable for the payment of any workers compensation insurance premiums payable by the subcontractor in respect of the work done in connection with the contract during any period of the contract unless the principal contractor has a written statement given by the subcontractor under this section for that period of the contract.”
Additionally, a principal contractor is still liable for the insurance premiums if they suspect that the subcontractor statement was false. Subcontractors who knowingly provide false statements are guilty of an offence.
The principal contractor has an obligation to keep this statement for a minimum of 7 years after receiving it.
If a principal contractor does not receive a subcontractor statement, they are able to withhold payment from the subcontractor until they receive the statement.
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Similarly, according to Schedule 2 Part 5 of the Payroll Tax Act 2007, the principal contractor is jointly and severally liable for the subcontractor’s unpaid payroll tax obligations unless the subcontractor gives them a subcontractor statement.
Again, principal contractors will be liable for the payments if they have reason to believe that the statements were false. Likewise, subcontractors who knowingly provide false statements are guilty of an offence. Principal contractors are also able to withhold the subcontractor’s payment under this law.
Furthermore, principle contractors who have paid a subcontractor’s payroll tax are able to lessen their losses. They can seek to recover their payment from the subcontractor through the courts.
Finally, under section 127 of the Industrial Relations Act 1996, “a principal contractor is liable for the payment of any remuneration of the relevant employees that has not been paid for work done in connection with the contract during any period of the contract unless the principal contractor has a written statement given by the subcontractor under this section for that period of the contract.”
Similarly to the other statutes, the principal may withhold the subcontractor’s payment until they receive a statement, the principal cannot rely on a statement that they suspect is false, and the subcontractor commits an offence by knowingly providing a false statement. A principal contractor may also recover some of the payments that they make under this section.
Under this law, the subcontractors have an obligation to keep records of the the statement for a minimum of 6 years.
As a principal contractor, you should make sure you receive a trustworthy subcontractors statement before paying your subcontractor.
Subcontractors should make sure that they have complied with their payment obligations, and statement obligations to ensure that they can receive payment.
As always it is important to consult a lawyer if a dispute arises, and it is even better to involve a lawyer from the beginning to reduce the risk of getting into a dispute.
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