What is subcontracting?

As an independent contractor, there may come a point in time where you need to consider subcontracting-you might decide to take on work as a subcontractor, or hire a subcontractor for your projects.

Whichever option you're exploring, how do you decide if the benefits truly outweigh the cons? And are there important tips you need to keep in mind?

A subcontractor is a business or a person that undertakes work for a company as part of a larger project. In undertaking a contract from a contractor, subcontractors carry out work that the contractor can’t perform, but remains responsible for. 

A subcontractor provides his or her services under a contract for service. This is a legally binding agreement between a business and a self-employed individual.

Subcontractors aren’t a part of your business - you don’t manage or supervise them, provide instructions on how they should perform their work or have line management responsibilities over them. Subcontractors deliver the service to your or your client ‘as if they were you’. 

Subcontractors may be engaged for fixed-term contracts, task-based contracts with no specified end date or long-term assignments.

Subcontractor examples 

• A digital marketing agency may engage a copywriter to perform the content and copywriting tasks as part of a larger project 
• A contractor in the construction industry may hire an electrician to perform electrical wiring services as part of a building job
• A designer may subcontract a logo design task to another graphic designer
• A web designer may subcontractor programming tasks to a developer
  

Perhaps you've experienced a slowdown in your work, or find that you've been getting the same type of projects and clients repeatedly.

If you're looking for a change, becoming a subcontractor can help open the door to other types of jobs you're interested in-such as larger-scale projects that you aren't typically able to land as an independent contractor.   

There are downsides to taking on subcontracting work, and you'll need to weigh the pros and cons depending on your situation. 

As a subcontractor, you might have to work at a lower rate than what you typically charge. Plus, if you're not credited for your work, you may not be able to include the project in your portfolio - something that is not ideal for many business owners.

Yet, these factors may not be an issue at all for some contractors - perhaps the project offers a good learning opportunity, and could increase their chances of landing better-paying jobs down the line. 

It's also important to keep in mind that subcontractors are responsible for paying taxes on their income (the Internal Revenue Service will look at various factors to determine if you are a subcontractor or an employee. Most companies will then accept the determination of the Internal Revenue Service when they hire you as an independent contractor).

If you've decided that this is something you want to move ahead with, here are a couple of tips to keep in mind: 

Do your research on contractors and companies you want to work with: 

Review their websites in detail, paying attention to testimonials they've received from past clients and projects they've included in their portfolios.

This will help you ascertain that they have the expertise, as well as the types of projects that you're looking to learn about and work on. It also helps to check out their LinkedIn profiles for testimonials from subcontractors, or other individuals whom they've worked with. 

Create detailed contracts: 

As your project progresses, disagreements may occur between you and your contractor about a variety of issues, such as the scope of your job or how the project should be executed.

To minimise uncertainty or instances of miscommunication, it's best to detail your agreement clearly in the contract. For example, if you are a self-employed person in the construction industry, you can define more clear and defined scopes of work and reduce the risk of errors by communicating requirements and timelines more easily.

As a subcontractor, you may be paid only after your primary independent contractor has received payment - so we recommend indicating when and how you'll be paid in your contract.

It's best to specify a time frame in which you'll be paid. For example, you may request to be paid within seven days after your construction industry contractor has received payment from the client. 

Don’t jump at every opportunity

It can be tempting to say yes to every opportunity that comes your way, especially if you’re experiencing a lull period in your business. 

But not every project is a good fit if you are in self employment, so it’s best to be selective and avoid over-committing. Here are a few questions that can help you figure out if an assignment is a good match: 

• Are the project requirements a good fit with my skills?
• Is the timeline realistic?
• Does the project offer a long-term opportunity?
• Does the contractor have positive reviews and a good hiring history?

Factor in extra time

Before you decide to take on a project, check in with the prime contractor about the following:

• How much input will the prime contractor have into your work? If he or she wants to review your work in detail, you’ll need to factor in several days to a week. This ensures that you’ll have sufficient time to make changes, before your work is submitted to the end client. 
• Is revision time accounted for? If the client requests for revisions, will the contractor extend your deadline to allow for revisions to be made? Or will you have to factor in additional time for revisions before confirming a deadline?

Get insured

Most clients and prime contractors will want to ascertain that you have an insurance policy in place before they engage you as a subcontractor.

Public liability insurance could be one of the most important covers you have when you work in self employment. This is an excellent option for independent contractors as it covers the legal costs and compensation payments if a business is deemed to be responsible for injury or property damage to an independent contractor, client or member of the public.

Here’s an example: let’s say you’ve left construction industry equipment lying around, and as a result, someone trips over it and is injured. If a claim becomes a legal matter, the policy will cover the costs involved - including any compensation you need to pay.

Don't forget to also consider health insurance. There are many companies that in fact specialise in hassle-free protection for self-employed people, freelancers, small business owners, and sole traders.

You may be offered a lucrative project, but you're having second thoughts because the scope of work is more than what you can manage on your own.

Here's when you can think about hiring a subcontractor, as it increases your capacity to take on projects that you couldn't have taken on as previously as an individual contractor. 

If this is an option you're considering, we've included a few helpful tips on hiring and managing subcontractors below:

Perform a background check on your subcontractor:

Before you enter into a job agreement with your contractor, make sure that you've performed a thorough background check.

Ask for references, and review their portfolio in to check that they have the specialist skills and experience you require.

Be aware of the changes to your job role as a primary contractor:

A significant amount of your time will now be spent on project management and client management roles.

You'll need to keep your clients up to date on the progress, manage deadlines and handle any concerns or issues that may arise. Make sure that you take all of these into account when you provide a self employed quote for the project.

Sign a subcontractor agreement:

A subcontractor agreement protects you from taking on liability for subcontractors you hire for your projects.

The contract will vary depending on the nature of your self employment work agreement and industry, but should cover elements such as:

• Project details: This covers information such as the project duration, timeline and scope of work.
• Communication protocols
• Payment details
• Costs that you've agreed to cover
• Non-disclosure clauses
• Non-compete clauses
• Dispute clauses
• Terms for contract termination or modification

We've also linked up to a few subcontractor agreement templates that you can use or adapt as a general contractor:

• PandaDoc
• Simply-Docs
• TemplateLAB

Avoid micromanaging:

In a HBR article, Emergent Research founding partner Steve King and author Dan Pink share an important tip: it's important to give your subcontractors and independent contractors freedom. King states: "You shouldn’t have to manage the work product of a contractor. If you are, find another one."

Allow them flexibility when it comes to their schedules, and give them space to complete their work on an as needed basis.

Offer feedback

Providing feedback doesn't have to be complicated or time-consuming.

In many industries, it can be as simple as conducting a brief review after a project to run through what went well and what didn't, or sending through an email with a few bullet points on areas of improvement.

There is a good guy on giving feedback to self employed contractors in this HBR article.

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