How to Manage Subcontractors Without a Spreadsheet Nightmare

Using subcontractors is how most trades businesses scale without the full cost and commitment of employment. A good subbie relationship (clear terms, reliable quality, straightforward payments) is one of the most valuable assets a growing trades business can have.

A bad subcontractor system creates problems in every direction: jobs running over budget because costs aren’t tracked, Revenue issues because RCT hasn’t been handled correctly, disputes because the scope was never clearly agreed, and cash flow problems because payments aren’t coordinated with job completion.

The system doesn’t need to be complex. It needs to exist and be followed.

The employee vs subcontractor distinction: getting it right with Revenue

Before anything else: Revenue Ireland has a clear set of criteria for distinguishing genuine subcontractors from employees in disguise, and the consequences of getting this wrong are significant.

A genuine subcontractor relationship typically involves:

• The subcontractor can work for multiple clients simultaneously (or has the right to)
• They supply their own tools and equipment
• They carry their own public liability insurance
• They invoice you for their work
• They can send a substitute to complete the work if needed
• You don’t control the method of working, only the end result

An employment relationship typically involves:

• The person works exclusively for you
• You provide their tools and equipment
• They work set hours at your direction
• They don’t invoice you. You pay them

If your “subcontractor” is working five days a week exclusively for you, using your tools, following your instructions throughout the day, Revenue may well treat that as employment, regardless of what your agreement says. The liability falls on you as the principal. Back-PRSI plus interest and penalties can be a severe shock.

If you have any doubt about the classification of a relationship, get specific advice. The cost of a short accountant or solicitor consultation is far less than the cost of getting it wrong.

RCT obligations when you’re the principal contractor

If you’re engaging subcontractors for construction work in Ireland, and you’re the principal contractor on the job, you have RCT obligations. This applies even if you’re a sole trader engaging one subbie occasionally. The principal/subcontractor relationship is determined by the contract structure, not the size of your business.

As a principal contractor, you must:

Notify Revenue before making each payment. Through the RCT Notification system on ROS (Revenue Online Service), you register each relevant contract and notify Revenue before paying each instalment. Revenue responds with the deduction rate that applies to that payment (0%, 20%, or 35% depending on the subcontractor’s compliance record).

Deduct the specified amount from the payment. If Revenue says deduct 20%, you pay the subbie 80% of the invoice and remit the 20% to Revenue.

Issue a Deduction Authorisation. A formal document confirming what was deducted, given to the subcontractor so they can account for it in their own tax return.

Pay the deducted amounts to Revenue. Monthly or quarterly, depending on your payment category.

Failing to operate RCT correctly, specifically paying subbies their full invoice without deducting when you should, makes you personally liable for the deducted amount plus interest. Revenue pursues this. It’s not a grey area they overlook.

Our full guide to RCT covers the mechanics in detail. If you’re a principal contractor and haven’t set up ROS access, do that before engaging your next subcontractor.

Tracking subcontractor costs per job

The operational goal is knowing, for each job, what you paid in subcontractor costs so you can calculate your actual margin.

In Tradify and ServiceM8, you can add subcontractor costs as a line item against a job, either as a purchase order raised against the job, or as a cost added manually once the invoice is received. This ties the subcontractor expense to the specific job and feeds into the job costing report.

In Xero, supplier invoices from subcontractors are coded to your subcontractor cost account and can be tagged with a project or job reference if you’re using Xero Projects. The integration between Tradify and Xero means costs logged in Tradify appear in Xero automatically.

The discipline is logging costs against the correct job at the time, not trying to reconstruct afterwards. A subbie invoice that arrives a week after the job is complete is easy to lose track of. Process it immediately against the relevant job reference.

Written agreements: what to include

Verbal agreements with subcontractors are legal. They’re also a source of most subcontractor disputes. A written agreement, even a simple one-page document, significantly reduces ambiguity.

The key elements:

Scope of work: Exactly what is the subcontractor doing? What’s included and what’s explicitly excluded? “First fix plumbing only, no second fix” is a scope. “Plumbing work” is not.

Rate and payment terms: Day rate or fixed price? If fixed price, for exactly what scope? When will payment be made: on completion, within 7 days of invoice, on a stage basis? State it explicitly.

Timescales: When does the work start? When should it be complete? What happens if the subcontractor isn’t available on the agreed date?

Insurance: Confirm the subcontractor carries their own public liability insurance (minimum €2.6 million in Ireland for most trades) and that it’s current. Ask for a copy of the certificate. A subcontractor without adequate insurance creates a liability for you if something goes wrong on your job.

Quality standard: What does completion look like? How will defects be handled if they arise after the job?

A simple template covering these points, adapted for each subcontractor, takes 20 minutes to create once and then takes five minutes to populate per job. For regular subbies, you may have a standing agreement that covers the ongoing relationship.

Managing quality and reliability

The most common frustrations with subcontractors, beyond money, are inconsistency and communication. A subbie who does excellent work sometimes and unreliable work other times creates unpredictability that’s hard to manage.

The practical approach is building a small pool of two or three reliable subbies for each trade you need, rather than relying on one exclusively. Diversity in your subcontractor relationships reduces the risk of a single person being unavailable at a critical moment.

Communicate clearly before the job starts. What time should they arrive? What access have you arranged? What is the specific scope? What are the quality standards for this particular customer? Clear briefing prevents most problems.

Paying subbies through Xero

Once a subcontractor’s invoice arrives, process it as a supplier bill in Xero: Accounts → Purchases → New Bill. Enter the supplier (your subcontractor), the amount, the correct account code (subcontractor costs), the relevant VAT treatment (if the subcontractor is VAT-registered, they’ll charge VAT; if not, no VAT applies).

Schedule payment for when it’s due according to your agreed terms. Xero’s payment runs feature allows you to batch multiple supplier payments and submit them to your bank as a batch, which saves time when you have several bills to pay simultaneously.

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Want your subcontractor system working properly?

RCT compliance, cost tracking per job, written agreements, and payment workflow. These are all part of what we set up in our Business Systems Setup service.

Book a free 30-minute call. We’ll make sure your subcontractor arrangements are both efficient and compliant.

Or read next: RCT Explained: What Every Irish Subcontractor Needs to Know