It’s easy to get caught up in the nuts-and-bolts of running a business. You might be one of many contractors who toil day-after-day on projects, like painting or plumbing, without a chance to think about the big picture. If this lack of business strategy has stunted your company’s growth, these tips can be used to help you refocus. Read more
Hiring a subcontractor is a crucial decision that can impact your project’s success. Since these workers will represent your company, it’s important for your construction management staff to fully vet them. Read more
Weighing the Pros and Cons of Subcontracting
The construction and contracting industry is one of serious ups and downs. Business surges, then falls off sharply. Many businesses can’t afford to maintain a large enough staff for those busy times through the lean months. Rather than deal with constant hiring and layoffs, many contracting companies choose to maintain a solid basic staff while employing the services of subcontractors when they need to boost their efforts. As with any business decision, there are benefits and drawbacks to this approach. In this article, learn a bit about the pros and cons of subcontracting in the construction industry.
Using subcontractors can increase your productivity vastly. It allows you to have more hands on deck right when you need them, and usually a subcontractor is a specialist in their area of work, meaning they’ll add an extra expert point of view.
Broad Access to Skills
Subcontracting allows you to diversify the skills you have on your crew. You can call upon exactly the people you need for the specific job at hand. This is especially useful for contractors who handle a wide range of jobs. You may only handle welding on occasion, for example, so when a job with this need comes up, you bring in an outside welder to help out.
Efficiency and Flexibility
Using an outside worker to handle occasional or specialized tasks allows you to maintain flexibility and efficiency in your operations. You’ve always got just the right person on board for the task at hand, and that person will be able to handle the task quickly and with precision. This makes you supremely adaptable, while still being able to provide quality service.
With a subcontractor, you’re hiring someone as a consultant or self-employed worker. This means you don’t have to pay employment taxes, which can save you a lot of money every year when the tax man comes knocking!
On the down side, you will have to spend a lot more time and effort communicating with a subcontractor than with one of your in-house workers. There will be more questions, more follow-up on progress, more time being spent on educating them on policies and safety procedures.
More Advance Planning
You will have to spend more time planning for your job. When you are using outside workers, you’ll have to take stock of who and what you’ll need for the job and put out a call for the temporary worker. You can’t just assign your guys to the job and go.
Most subcontractors provide expert work at a high level of efficiency, but there is always a risk, particularly when working with someone you’ve never dealt with before. Eventually you will build a pool of reliable and trustworthy consultants, but you may have to go through some rough relationships first. Your favored contractor may also not always be available for the job when you need them, forcing you to find someone else.
Despite the potential pitfalls, many construction companies work with subcontractors every day. You need to understand all of the pros and cons of subcontracting, make sure you have all the proper liability coverage for your business and decide if doing so is right for you.
Are They Contractors or Employees?
Independent contractors and subcontractors are a major part of the construction industry. They are the lifeblood of many companies because they allow you to function with the workforce you need, tailored for every specific job. Because they cover their own licensing, tools and insurance, they cut down on overhead and allow you to function smoothly. It is important, however, to make sure that your independent contractors are not actually employees who are misclassified. Here’s what you need to know about avoiding employee misclassification in the construction industry.
Employee misclassification is a major concern these days. It is all too common, and as a result the IRS is beginning to come down hard on those who engage in this practice. Most misclassification issues are simple errors on the part of employers who don’t understand what constitutes an employee versus an independent contractor. Nonetheless, the penalties can still be harsh and can result in serious liability problems to the tune of at least thousands of dollars in tax payments.
A true independent contractor is self-employed. They control how and where they do their work, and the scope of the work. If you control the worker’s duties and how they are performed, if you determine how they are paid and who supplies tools and equipment, and if the worker performs a key role in your business on an ongoing basis, they are likely an employee and not an independent contractor.
One of the best ways to avoid misclassification problems is to make sure you’re hiring workers who have already incorporated their own business. This provides a solid paper trail that you’re working with another business and not your own employees. When you work with a corporation, you pay the company, who then pays the worker. You are shielded from allegations that you have a relationship with the worker directly.
If you are audited by the IRS, you can use the paperwork to back up your claims that you are working with true contractors. The proof will be there that someone else is paying taxes, benefits and the like, and controlling the scope of work of the employee.
Another option is to hire workers from an employee leasing company. Such employees are temp workers, casual or contingent workers, or contract employees. The term and scope of their employment is set with the company through which you lease them. They, in turn, are paid and get their benefits from that company. They are, in essence, doing work for you while employed by someone else.
The danger of using this kind of worker is that if you supervise them and define the nature and scope of work, you can be seen as a joint employer, meaning they are still misclassified. It is essential when using independent contractors that you do not exercise control over them or their duties.
Contracts are the core, the heart and soul, of the construction industry. As a contractor, you know that these written agreements not only define the scope of services you will provide, but they allow you vital protections against lawsuits and liability issues should anything go wrong during the course of work. Construction law is difficult and complex and, it seems, ever changing. Here’s an overview of what you need to know about the different types of construction contracts.
Fixed Price and Lump Sum
There are three types of construction contracts that are most commonly used, and of these the most common is the lump sum or fixed price form of contract. With this type of contract, the property owner seeks bids from several contractors to get the best deal they can. Since with this system the entire scope of a project is presented up front, this contract is able to clearly outline the scheduling, deadlines, costs, budget and other crucial aspects of the project.
Cost plus contracts are more open and freeform. They are best applied when the costs and timeframe for the project are somewhat unclear. They allow the payment to be negotiated rather than defining it as a fixed cost. It essentially agrees that the contractor will be paid for the costs of the job plus labor fees, which can be set or a percentage and may include a bonus for quick completion of the job.
Time and Material
When the overall scope and details of the project are largely or completely unknown, a time and material contract can be implemented. Whatever the variables are, if the project is nebulous, this kind of contract is an option, though it is generally the least favorable of the three types. It agrees on an hourly rate for the contractor and materials paid for by the property owner. Separate fees are negotiated for contractor profit and overhead issues.
If your company is a union shop, there are other considerations and guidelines you will need to follow to ensure that the job contract is in line with union requirements. There are expectations that the union will have to see fulfilled before work can commence, including conditions of employment, discrimination issues, grievance procedures and the like.
These types of construction contracts will also address the kinds of workers you will be using. Most common are subcontractors who use their own equipment and are licensed on their own. They have to be specifically accounted for within your job contract, or you could end up with liability and lawsuit issues if things go wrong.
Direct hire employees, on the other hand, work for you and your company. These employees carry fewer but different liability issues. You will have to account for payment practices, the type of work performed and working conditions when dealing with direct hires. Don’t forget to keep your company and your employees protected with workers compensation insurance.