It’s important to know the advantages and disadvantages of hiring subcontractors and how it would affect your business. Different projects may require a different hire, so it’s best to make the consideration on a case-by-case basis.
Hiring a contractor has many advantages.
Subcontractors require less commitment and responsibility. Hiring employees is an investment of time and money. You will assume the cost of mentoring, training, and managing the employee. If you make a poor choice, it takes time and effort to terminate them and hire a more qualified replacement.
Hiring a subcontractor provides flexibility. You can contract the services you need when you need them. If you don’t need their service on a regular basis, it generally makes more sense to hire an independent contractor.
Subcontractors can offer specialized services. Educating an employee to complete a short project could be far more expensive.
Independent contractors can be more affordable. You may pay more per hour for an independent contractor, but your total cost can be less. The cost of payroll taxes, workers comp insurance, unemployment, and health care benefits can be a substantial expense. You don’t need to provide office space or pay for computers and other equipment when hiring contractors.
There are several disadvantages of hiring independent contractors.
You have reduced control when hiring a contractor. You can’t oversee day-to-day activity or determine how they get the work done. They can work for other clients, so you can’t assume they will make your projects their top priority. If it’s essential to have significant control over what your workers are doing and how they’re doing it, hiring employees is the better option.
Employers often use contractors only for relatively short-term projects. Consequently, workers are constantly coming and going, which can be inconvenient and disruptive. And the quality of work you get from various contractors may vary. Employers who want the same quality day after day are better off hiring employees. When using subcontractors, there isn’t as much accountability after the project is complete. Employees will be held responsible long after the project is finished.
For each project, you should consider all of the benefits and drawbacks of hiring an employee or contractor.
Then decide on the most important requirements to determine the best option.
If you decide to hire subcontractors, there must be clear communication and cooperation between both parties. You’ve got to be on the same page about your goals as well as the terms and conditions of your contract.
Include a non-disclosure clause if you will be sharing confidential information.
General liability coverage can get messy in this type of relationship if a client sues and holds you responsible.
It’s generally a good idea to have an attorney review any contract before signing it.
It’s crucial to know the difference between a subcontractor and an employee for tax purposes. I will be covering this topic in a future column.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of five tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David has appeared on national tv, and recordings of David’s daily tax tip radio program are also available. David can be reached at (865) 363-3019 or contacted by email at firstname.lastname@example.org