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.
FEDERAL GUIDELINES
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