Use of Subcontractors Regarded as Having Big Advantages

Use of Subcontractors Regarded as Having Big Advantages

The cart or the horse? The chicken or the egg? Subcontractors or in-house installers? The discussion rages on. Whether it's more practical to use in-house installers or subcontractors is only the beginning of the controversy, however.

Using a work force consisting of subcontractors has many distinct advantages a primary one being that labor costs are easily defined and controllable. If you pay the subcontractor on a piecework basis, your labor costs can be determined before a job begins. The subcontractor eliminates figuring overhead, burden (insurance, medical, vacation, vehicles, etc.) and salaries to get to an actual labor number for each and every job, and each and every employee. This makes the estimating process, job autopsies and profit-margin reconciliations a much easier task.

Another advantage to a work force of subcontractors is that it allows the subcontractor to overstock labor. There's no financial concern over the fact that you have an installer's payroll to meet, for example, and not enough work to cover it. If the workload is slow, then the subcontractors don't work and don't get paid.

In contrast, if you utilize in-house installers, you're looking for something for them to do, paying them at times for doing nothing, or laying them off and risking being subject to unemployment insurance and related costs. While you'll be in the same predicament if your workflow continues to be slow, your subs will leave or your employees will find another job. In other words, the financial risks are greatly diminished with the use of subcontractors.

The use of subcontractors also allows you to specialize an individual's skills, and to take advantage of their talents. The use of subcontractors allows you to use your best people in each situation and never have to settle.

I've often heard that you don't get the same effort, quality, loyalty or control from subcontractors as you do with employees. But that's simply a result of the relationship you achieve with your subcontractors. Think of the best supplier you have. Doesn't he give you great service and watch out for your interests like they're his own? Why does he do that? Because he's in business to make money and you help him do that.

The most difficult task in using subcontractors is paying attention and conforming to the details of the federal government's definition of a subcontractor. In general, anything you can do to establish a business-to-business relationship will aid in your ability to claim that a worker has subcontractor status.

Some of the more important federal guidelines are as follows:

  • Subcontractors' ability to generate income from other sources is key they must prove that you are not their sole source of income.
  • You cannot mandate that they come to training sessions or meetings that you conduct, or mandate that they work specific hours each day.
  • Subcontractors must carry their own liability and worker's compensation insurance, and have licenses to operate as a contractor.
  • They must bill you on a job-by-job basis, on their own company letterhead.

These are a sampling of the more important issues, but you should check with anyone you currently use for detailed legal advice on what to do and what not to do when using subcontractors.

Our company currently uses subcontractors to do all of our installations, and has done so for more than 10 years. During the course of those 10 years, we've tried some in-house installers, with little or no success. We currently produce in excess of $20 million in installed sales annually, with approximately $10 million coming from kitchen and bath sales. Of the 25 different crews we use in the kitchen and bath department, our average relationship with our subcontractors has been in place more than four years. Many of the installers we use have been with us for more than seven years.

There are many advantages to using subcontractors instead of in-house installers, as long as you implement systems and processes to achieve the desired results you need to be successful. Make each system work for you and the needs of your company.
Douglas Cornwell, CKD
Alure Home Improvement
Hicksville, NY