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Business Strategy Tips for Busy Contractors

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

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Understanding the Pros and Cons of Subcontracting

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.

Productivity Boost

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.

Pros and Cons of Subcontracting

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.

Tax Benefits

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!

Communication Breakdown

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.

Pros and Cons of Subcontracting

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.

Quality Control

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.

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All You Need to Know about Employee Misclassification

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

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.

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Determining Self-Employment

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.

Incorporated Workers

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.

Employee Leasing

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.