August 20, 2014

Strengthening Your Small Business With Subcontractors

using contractors instead of employees

Dealing with the ebb and flow of workloads can be challenging for small businesses. How do you address those extra busy times without adding regular employees? And what happens when things slow down again?

Subcontractors can often help provide a great solution. Below are some benefits of using subcontractors and considerations for bringing subcontractors on board.

The Benefits of Using Subcontractors

1. Cost-Effective Help

Without creating a lot of additional overhead, you can bring subcontractors (or independent contractors, freelancers, etc.) on board to handle extra work.

Hiring a new employee can cost you 25 percent more than if you bring a subcontractor on board for the same purposes. Why? Because for an employee, you’d likely pay Social Security and Medicare tax, worker’s compensation insurance, liability insurance, employee benefits, training, and so on.

2. Specialized Assistance

Subcontractors can bring with them a unique skillset that can enhance your business’s work. From design efforts to technical writing tasks and beyond, you can keep clients happy by meeting their needs with specialists you might not have in-house already.

This also keeps your existing team members focused on their areas of expertise, so their primary work doesn’t suffer if there’s an assignment that doesn’t play to their strengths.

3. Busy-Season Boost

Is there a particular time of year that sees a surge in business?

Subcontractors can provide the extra manpower when you need it temporarily. Whether it’s around the holidays in the winter months or tourist season during the summer, subcontractors can be the answer to meeting those seasonal needs without bringing folks on board for the long haul.

So, what’s next if you decide this could be a good path to take for your business?

When Working With Subcontractors. . .

Find the Right Fit

Use your existing networks – word-of-mouth, social media, etc. – for trusted recommendations and referrals. Check out portfolios or samples to get an idea of a person’s work.

Create an Agreement

Formalize the basic terms and conditions of this new working relationship. Include a description of the professional services delivered, quality expectations, termination conditions, invoicing terms, tax reporting requirements, non-compete language and an intellectual property agreement.

Consider a Non-Disclosure Agreement (NDA)

This legal document establishes the confidentiality of shared knowledge or materials. It can restrict subcontractors from speaking about or divulging private company information to outsiders.

Follow Hiring, Tax Reporting and Labor Requirements

The law is strict when it comes to how businesses classify subcontractors/freelancers versus employees  – and violations can be costly. Check out these articles about contracts and tax forms for more information.

Subcontractors Photo via Shutterstock

5 Comments ▼

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5 Reactions

  1. I would say that an NDA is a must-have. Even low-level temporary contractors can learn enough about your business to cause harm if they tell the wrong people.

  2. How well will a NDA hold in the long run?

  3. Excellent suggestion. Subcontractors not only reduce the cost for small business owners, but it also provide flexibility by not having to hire employees full time when you are not sure about the demand. Having proper agreement, NDA and proper understanding of the expectations are keys to success when hiring subcontractors.

  4. One alternative to using subcontractors is to hire an outsourced service firm. Business tasks such as bookkeeping, payroll, accounts receivable and accounts payable can all be allocated to an outsourced financial services firm. This way you don’t have to worry about tax reporting and labor requirements as you are hiring the services of a company (and paying a monthly service fee), versus the employ of an individual.

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