IT Subcontracting Guide: Protect Yourself in Australia - MSP Guide Australia

The Subcontracting Trap

You're a skilled IT professional. An MSP offers you subcontracting work. The rate sounds good. The contract looks standard.

What could go wrong?

Everything. Here's how to protect yourself.

What Is IT Subcontracting?

IT subcontracting is when: - An MSP wins a contract from a client - The MSP subcontracts part of the work to you - You do the work under the MSP's direction - The MSP bills the client and pays you a cut

The problem: You're doing the work. The MSP is taking the profit. And you have none of the protections of employment.

The Red Flags

Contract Red Flags

• No written contract — Always get it in writing
• Vague scope — "Do whatever we need" is not a scope
• No rate locked in — "We'll discuss rates later" means low rates
• Unlimited liability — You're liable for everything, MSP is liable for nothing
• No payment terms — "When we get paid" is not a payment term
• Non-compete clauses — Can't work for the client directly
• IP assignment — Everything you create belongs to the MSP

Relationship Red Flags

• No direct client contact — You're hidden behind the MSP
• No named resources — You could be swapped out anytime
• No project visibility — You don't know the full picture
• No escalation path — When things go wrong, you're on your own

Your Rights as a Subcontractor

Fair Work Act

• Minimum engagement — At least 2 hours per engagement
• Payment terms — Must be paid within 30 days
• Right to complain — Can't be punished for raising concerns
• Workplace safety — Client must provide safe work environment

Tax Obligations

• ABN required — You must have an Australian Business Number
• GST registration — If earning over $75,000/year
• PAYG — No tax withheld (you pay your own)
• Super — Not entitled to superannuation
• Insurance — You need your own

Contract Rights

• Written contract — Must have a written agreement
• Clear scope — Work must be clearly defined
• Payment terms — Must be specified
• Termination terms — How either party can end the agreement
• Dispute resolution — How disagreements are handled

How to Protect Yourself

Before You Start

1. Get a written contract — Never work without one
2. Define the scope — Exactly what you'll deliver
3. Lock in rates — Hourly, daily, or project-based
4. Set payment terms — Net 14 or Net 30 maximum
5. Limit liability — Cap at contract value
6. Define IP ownership — Who owns what you create
7. Get insurance — Professional indemnity at minimum

During the Engagement

1. Document everything — Hours, tasks, decisions
2. Communicate in writing — Email, not phone calls
3. Track your time — Use a time tracking tool
4. Submit invoices promptly — Don't let them pile up
5. Follow up on payments — Don't be shy

If Things Go Wrong

1. Know your rights — Fair Work, contract terms
2. Get legal advice — Before signing anything
3. Document the issue — Written records
4. Escalate appropriately — MSP first, then client
5. Consider small claims — Under $20,000 in most states

Tax and Insurance

ABN and GST

• ABN: Required for subcontracting
• GST: Required if earning over $75,000/year
• BAS: Quarterly Business Activity Statement
• Tax: You pay your own income tax

Insurance

• Professional Indemnity: Covers errors and omissions
• Public Liability: Covers property damage/injury
• Income Protection: Covers if you can't work
• Total & Permanent Disability: Covers serious illness/injury

Superannuation

• Not entitled as a subcontractor
• Set up your own super fund
• Contribute regularly — Don't skip it

The MSP Subcontracting Model

Here's how MSPs use subcontractors:

1. Win the contract with promises of senior resources
2. Hire subcontractors at lower rates
3. Charge client premium rates
4. Pocket the difference

Example: - Client pays MSP: $180/hour - MSP pays you: $100/hour - MSP profit: $80/hour

You're doing the work. The MSP is taking the profit.

How to Negotiate Better Rates

Know Your Market Rate

• Use our Salary Calculator
• Check job boards for equivalent roles
• Talk to other subcontractors
• Research the client's budget

Negotiation Tactics

1. Start high — You can always come down
2. Justify your rate — Experience, skills, certifications
3. Offer value — What makes you worth more
4. Set boundaries — What's included, what's extra
5. Get it in writing — Before you start

Rate Benchmarks

• Junior subcontractor: $80-$120/hour
• Mid-level subcontractor: $120-$160/hour
• Senior subcontractor: $160-$220/hour
• Specialist: $200-$300/hour

The Bottom Line

IT subcontracting can be rewarding, but it's risky. Protect yourself with: 1. Written contracts 2. Clear scope 3. Locked-in rates 4. Payment terms 5. Insurance 6. Documentation

Don't let the MSP take advantage of you.

Use our Red Flag Scanner to check your subcontracting contract.

Related Guides

• MSP Contract Checklist — Review contracts before you sign
• Fair Work and MSPs — Your complete Fair Work rights guide
• How to Escape the MSP Trap — Your complete escape plan
• IT Contractor Rights Through MSPs — Employment rights when placed by an MSP
• Non-Compete Clauses — When non-competes don't hold up
• Salary Arbitrage Calculator — See the gap between your rate and the MSP's bill rate

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This guide is based on Australian employment law and industry practices. For specific legal advice, consult a qualified employment lawyer.