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Hiring IT Subcontractors? 5 Things You Need to Know

Hiring IT Subcontractors? 5 Things You Need to Know

Tuesday, August 29, 2017/Categories: independent-contractors

Do you have more freelance work than you can handle? That's not surprising. As we previously covered in "4 Ways You Can Prepare for an Increased Demand for IT Freelancers," the US Labor Secretary's recent withdrawal of two Obama administration legal opinions may lead to increased in demand for freelancers.

If you're struggling to keep up with your workload, it might be time to hire an IT subcontractor. But before you make an offer, check out these five things you need to know first.

1. You Are Responsible for the Action (or Inaction) of Your Subcontractor

Once you hire a subcontractor, you don't get to mentally check out from the project. Remember, the client hired you to get the job done. That means you're responsible for everything your subcontractor does – or doesn't do.

"The most basic rule that anyone who uses a subcontractor must understand is that, from the client's perspective, EVERYTHING is your responsibility," says attorney Stanley P. Jaskiewicz, Esquire, member at the law firm "Even if something has been delegated to another person or firm, if you are in charge, you can be held liable if your subcontractor makes a mistake or fails to perform."

You don't want to hover over them, checking everything they do, but it's important to have periodic check-ins to make sure the project is on track. Remember, the buck ultimately stops with you – not the subcontractor.

2. You Want to Make Sure Your Subcontractors Are Insured

The first step in hiring subcontractors is ensuring they have the necessary skills to get the job done. But in addition to checking out a potential subcontractor's technical chops, you may also want to request proof of their business insurance.

"Subcontractors should maintain their own business insurances, such as Workers' Compensation, premises insurance [General Liability Insurance], and Errors and Omissions Insurance in case there is litigation over their work product," says attorney Richard Reice, a partner at the law firm (@hnrklaw).

That way if you're sued over a subcontractor's mistake, you can make a claim on their policy to cover the damages.

If your subcontractors need help sorting out their insurance, point them in our direction – we can help them find coverage fast.

3. You May Need to Add Subcontractors to Your Own Insurance Policies

In some instances, you may need to temporarily add subcontractors to your own insurance policies, even if they have their own.

"If the sub is doing work for you, your name and reputation are on the sub's work, so I will almost always recommend adding the sub to my client's coverage, unless the cost is truly prohibitive," says Jaskiewicz.

However, adding a subcontractor to your policy may blur the line between whether this person is an employee or a subcontractor.

"It smacks of employment of the sub as opposed to an arm's length business transaction," cautions Reice. "That said, the freelancer should check with their business insurance agent and review the requirements of their contract with their client."

4. Make Sure Your Subcontractors Aren't Classified as Your Employees

As we mentioned earlier, there's a risk your subcontractors could be legally classified as your employee if you aren't careful. To avoid that, Reice recommends making sure that the subcontractor…

  • Has other clients.
  • Is in control of the means and manner of their work, including the ability to set their own hours.
  • Has their own insurance, equipment, and premises.

Again, the recent changes by the US Labor Secretary make it easier for employers to classify workers as freelancers versus employees. Still, it might be a good idea to consult with your attorney to make sure you are classifying subcontractors properly.

5. You Should Always Use Contracts When Hiring Subcontractors.

Use subcontractor contracts to outline project parameters and to circumvent potential disagreements about deliverables and payment.

"Assuming that the freelancer is looking for a specific deliverable from the sub, the contract should in some ways not be too dissimilar from the contract the freelancer has with the client," says Reice.

He recommends detailing…

  • The scope of the work, including design parameters and any performance standards.
  • Amount to be paid and when, due dates for work to be completed, and what the penalties will be, if any, if the work is late.
  • Who owns the final work product.
  • A provision that prohibits the sub from subcontracting any portion of the work to another subcontractor.

For more on why you should always use contracts with your subcontractors, check out "The Importance of Using Written Agreements with Subcontractors."

Don't get overwhelmed by the formality of using a contract. Keep it simple and cover the major points.

"All contracts like this should be in plain English and with attention to clarity and detail," says Reice. "Professional societies often maintain boilerplate industry-specific contracts that can be adapted to a given project."

We may not be a professional society, but we do have free sample contracts that you may want to check out.

About the Contributors

As a member in the corporate law department of Spector Gadon & Rosen P.C., Stanley P. Jaskiewicz assists and advises privately-held and family-held businesses on a wide range of legal matters, including contracts law, secured lending and negotiated acquisitions, Internet and technology law, corporate governance, intellectual property, regulatory counseling, fine arts law, and foreign law.

 

 

Richard Reice, a partner at Hoguet Newman Regal & Kenney LLP, is an experienced labor and employment law counselor and litigator with both law firm and in-house counsel experience. He has considerable expertise in negotiating employment contracts and collective bargaining agreements – litigating employment discrimination and restrictive covenant / IP protection matters both locally and nationwide.

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