Sub Contracting?

Question

Hello,

My father has been running his own aluminum/vinyl siding business for almost 20 years. He has always hired his own employees. However, my Father is Manic Depressive, and he will go through times where he wont work, his people quit and etc.

Well I am planning to help him with the business and eventually take over. There are many aspects of the way he conducts business that aren't the best. I do plan to implement change. He had asked me the question though, "what would you do, sub contract, or hire your own employees". I have kicked around the idea.

I am not sure, and I was curious to what specifically are the advantages, and dis-advantages to sub contracting, versus hiring your own employees.

Any help is appreciated.

Answer 1

SubContracting is tightly regulated by the IRS.

The subcontractor must:
Have their own tools and equipment
Have their own insurance
Be actively seeking work from other sources besides you

Employees come with a different set of risks
You must carry insurance, including workers compensation
you must supply all tools and materials
you have to hustle and get the work to keep them employed.

Answer 2

Subcontracting would save some money simply because the contractor must carry their own insurance and pay their own employee's taxes. There are large companies out there that have gotten to the size they are by doing just that. Contracting the work out.
When your the employer, you must match all fed, state, local taxes along with other items such as un-employment compensation (employers pay unemployment regardless if the employee ever collects it or not, you still have to pay it) on your employees which can become costly. Make sure that you get good reputable contractors and also make sure that you purchase the materials yourself rather than allowing the contractor to do this.

Answer 3

As a customer, I've had bad experiences with companies that sub-contract work out. For instance, when I was getting married, I went to a bridal show and saw a guy with a limosine that he let my wife and I sit in. It was nice, brand new, and everything we wanted. The plus was that it could hold 16 people which was important to us since we had a large wedding party.

Didn't know it, but he sub-contracted another limosine service to pick us up. This limo was 25 years old and had cheesy heart-shaped windows in the back where the bride and groom would sit. As luck would have it, it was 106 degrees outside and the limosine had no rear air-conditioning. I objected and the driver said this was the only limosine they had. What are you going to do when its your wedding day and this is the only limo available? You have to take it. Then when they dropped us off at our reception after the wedding, the enitre wedding party went into the reception hall to cool off. The limo driver came looking for me and found me in the bathroom and was very upset and irate and accused me of not paying him. I had paid the original limo service I contracted with in full weeks before the wedding.

So, moral of the story is that I had a bad experience on three fronts...1) I did not get the product/service that I thought I was getting...2) There was bad communication between the sub-contracted limo service and the one I contracted with in regards to payments...3) I had an exchange with a rude and irate limo driver and received bad customer service from this standpoint on my wedding.

I would not likely be a customer of companies that sub-contract out part of their business because of this. As a company manager/owner, you should realize that how others perform, act, etc...will reflect well or poorly on your company. Are you willing to gamble your business' reputation on another company and their employees?

I advised my friends not to use the limo company we used.

Answer 4

sub contractors are great because you don't have to pay them the benefits or extra SS taxes, but you have to realize that you might lose them to other work and not be able to meet your capacity when needed.

you'll also want to make sure that you are not violating any labor laws to the definition of a sub v. an employee.

employees will cost you more to keep on the books, but tend to be more consistent, because you are paying the extras and they don't have to market for themselves.

Answer 5

Go to ADP's web site and check it out. They are huge in leasing back employees and a rep there can start you on your way once you know the pros and cons.