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How to Use Subcontractors to Save Money and Increase Business Agility

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How to Use Subcontractors to Save Money and Increase Business Agility

By Caron_Beesley, Contributor
Published: November 7, 2011 Updated: April 30, 2012

How does your business cope with the peaks and valleys of increased workload? By hiring the expertise of subcontractors, independent contractors, or freelancers to handle your extra work, your business can quickly scale up without creating a lot of additional overhead.

However, to realize these savings it’s critical that you understand the pros and cons of working with subcontractors, and the hows of finding the right one for your needs. Here are five tips and considerations to help you assess your hiring strategy.

How Much Money Can You Save?

Some basic math suggests that hiring an employee can cost a small business owner 25 percent more than it would to hire a subcontractor to do the same work. The biggest factor is what you would typically pay for an employee’s Social Security and Medicare tax, worker’s compensation insurance, liability insurance, employee benefits, training, and so on.

The overhead for specialist functions can also be a lot less if you outsource them, instead of hiring in-house staff to handle them.  Accounting firms, for example, charge a flat monthly fee, which can be as low as $35 plus an additional fee per employee (often less than $5 per headcount).

You might also want to consider outsourcing your administrative functions. Virtual assistants can be hired for as little as $20-$50 an hour to help with all facets of your business – from managing your business expenses and maintaining inventory to proofing and formatting your sales pitch in PowerPoint.

Other Benefits of Working with Subcontractors

There are also several other reasons why small businesses find value in utilizing subcontractors. Using the specialist skill set of a freelancer/subcontractor can allow your business to more appropriately meet clients’ needs. By hiring specialists for some tasks, your clients are happier, and you’ve kept your own experts focused on the work they perform best.

Subcontractors can also be useful when you are in a start-up or expansion phase and can’t afford to take on full-time employees to immediately help you operate, market, and grow your new business.

Subcontractors can also help out during busy seasons when you simply don’t have enough hands-on staff.

Deciding to Outsource

Several factors come into play when determining whether or not to seek the help of subcontractors, do it yourself, or hire more employees. To help you decide, consider the following:

  • Cash – What would it cost to hire someone to do the work or do the work yourself, versus having someone else do it? This includes the immediate costs (recruitment, training, desk-space, computer equipment, etc.) and long-term costs (payroll taxes, benefits, etc.) 
  • Skill Set and Time – Weigh whether you have the time to recruit, train, and manage a full-time employee for the task. Can you immediately access the skill set you need from a reputable and trusted subcontractor?
  • Past Performance – How successful are you at making good hiring decisions? How many bad ones have you made? 

Tips for Finding the Right Subcontractor for Your Needs

If you are seeking the services of a freelancer or independent contractor, get tips on finding the right one and how to establish a legal working relationship with them in: Outsourcing to Freelancers & Consultants: Five Tips for Getting it Right (and Lawful).

If you need help with specific business functions such as marketing, payroll, or accounting you may consider outsourcing to specialist firms that may offer cost benefits.

These articles might help you in your search for outsourced help:

Know the Law! – Classify Independent Contractors Correctly

The law is very firm on how businesses classify independent contractors/freelancers versus employees and any violation can come with costly IRS penalties. To help you understand how and why, SBA has put together this useful guide: Independent Contractors vs. Employees.

About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

Great post. I deal with a lot of contractors as a consultant for funding and also marketing and many use their funding to purchase marketing only to find they are getting too many calls they cannot handle and instead of sub contracting, ignore the calls which leads to a poor business image which is very hard to overcome.

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