If you’re self-employed, such as freelancing for your main source of income, you may have wondered if there would be any benefits to subcontracting your workload. When a self-employed contractor such as yourself hires other contractors to complete work, this is known as subcontracting.
There are, in fact, many benefits to subcontracting for self-employed individuals, but there are also many things to consider and be aware of. In this article, we will highlight several important considerations and how to get the most benefit out of subcontracting your projects.
Handling Payroll and Tax Documents for Subcontractors
Depending on the subcontract arrangement, the subcontractors you hire may either be categorized as independent contractors or employees. It’s very important to be aware of which category they’ll fall into when tax filing season rolls around.
If the subcontractors you hire are categorized as employees, for example, you’ll be responsible for generating pay stubs that provide information such as wages earned and tax and benefit withholdings.
You may also need to provide pay stubs to independent contractors, and 1099 forms if you’re paying the subcontractor more than $600 within the year (one-time payment or $600 over the course of a year).
Examples of Subcontracting for Self-Employed Individuals
Let’s say you’re an online freelance writer who negotiates a contract with a client for a rather large project. The client expects you to deliver 100 blog articles of around 600 to 800 words per topic, all delivered within a month.
For a veteran freelance writer, 60,000 words in a month is not a terribly difficult goal. Assuming you can write an average of ~600 words (1 topic) per hour, and you’re able to complete 6 to 8 topics per day writing full-time, it would take you around two weeks to finish the project by yourself.
Of course, writing at that volume and speed would very quickly lead to burnout. So you might consider subcontracting some of your topics to other freelance writers, perhaps negotiating to pay them a lesser rate than what you earn from your client.
This sounds great in theory. You’re reducing your own workload, and earning a small profit on the subcontractor’s work. However, it’s not entirely rosy as it seems, if you just jump into this sort of subcontracting arrangement.
For example, your client might expect your particular writing style, and be confused when some of your topics are obviously written by somebody else. Your client might not care about that at all, but if they did, you’d spend time editing and rewriting the subcontractor’s work to more closely emulate your own writing style.
You might also hire very cheap subcontractors who deliver sub-optimal work or even plagiarized content, and again, you would spend time fixing up their work to the standards that you would personally deliver to your client.
You also want to be careful if your client had you sign a non-disclosure agreement (NDA) or contract that you are the sole person working on and knowledgeable of the project. Subcontracting bits of the work would obviously be in breach of an NDA.
Tips on Effectively Using Subcontractors
When you hire subcontractors, you effectively become a project manager. In the freelance writer example above, this could even lead to starting your own in-demand business services and providing a higher volume of services to clients as an agency.
However, whether you use subcontractors as a one-time thing or want to establish yourself as a legitimate subcontracting agency, there are several things you should do to ensure a smooth operation.
Your subcontractors need to be aware of all pertinent project details and expectations. If you find yourself explaining the same guidelines to multiple people, you should just create a document that lays out all project guidelines in detail.
Also make sure you provide examples of the quality of work expected. Using the freelance writing example again, a very cheap writer you subcontract to may deliver obviously plagiarized content from various online blogs.
Josh Scott works as a careers consultant and has experience working with students as well as older people looking to make a major career change.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
