5 Benefits of Subcontracting for IT Businesses
Payroll services company SurePayroll found in 2013 that one in five small-business owners actually prefers subcontractors to regular employees. Why is that?
Subcontracting offers five main benefits to small businesses:
- Money. Subcontractors cost less than employees and don’t come with a long-term financial commitment.
- Time. IT business owners are swamped. Outsourcing work to subcontractors can free up their time to focus on big-picture problems.
- Flexibility. Many businesses choose subcontractors for the flexibility they offer: without the commitment to long-term employment, businesses can easily increase and decrease capacity.
- Expertise. Subcontractors add tools to your toolbox. Whether you need help with SEO, SQL, or accounting, you can hire a subcontractor to make sure your team has all the skills it needs to handle a project.
- Simplicity. When you subcontract, you only have a fraction of the paperwork that comes with hiring a fulltime employee.
Because you don’t have to pay for contractors’ benefits, they can cost significantly less than employees.
TechRepublic estimates that employee benefits run as much as 20 to 50 percent of salary. An employee making $70,000 in salary could really cost their employer $84,000 to $105,000 when you factor in benefits, taxes, and things like Workers’ Compensation Insurance.
The flip side is that a contractor can cost you less. When you factor in the cost savings that comes with not having to pay benefits, a contractor making $80k is actually less expensive than an employee making $70k.
Small-business owners are used to doing everything themselves. At a certain point, your business will take on projects that make this impossible. When that happens, you can hire subcontractors to help you get work done faster.
Because subcontractors work project by project, they often have a strong incentive to finish a project quickly and well, so they can move onto other jobs. Short-term, project-based employment can spur your subcontractors to work better.
A Harvard Business Review article shows how DARPA, the research organization that invented the Internet, uses temporary project teams to improve productivity. This approach keeps your team focused on the task at hand and motivates them to finish faster.
Plus, there's the added benefit of being able to hire people to work during your off hours. James Johnson, managing partner at SnowPak (@BestSkiPackages), an ecommerce site that sells ski travel packages, points out that "working with people in different time zones can be great. We can send off work in the afternoon and have it finished when we wake up the next day. Research projects are fantastic for outsourcing."
Say you run a small software development firm. On any given day, a client could walk through your doors with a project that pays well but requires more resources than you currently have. This is exactly where subcontractors can help.
By hiring additional developers as subcontractors, you can handle the extra workload. You can scale your staff up or down depending on project capacity – the definition of flexibility.
Johnson has found this especially helpful as a small-business owner. "A small business doesn't need a full-time social media manager, but having one for 10 hours a week can make a huge difference, and really frees us up to manage the more important tasks," he says.
This might be the most “no-brainer” reason to hire subcontractors: you need their expertise.
You may need contractors to help you with accounting, HR, or other nuts and bolts of running a business. Or you may need their IT expertise. Bringing in statisticians, UX experts, or security consultants can improve the product you deliver to clients.
And sometimes you might go to subcontractors for their "soft" skills and marketing acumen. Mitch Goldstone, CEO of ScanMyPhotos.com (@ScanMyPhotos), explains that "most tech companies are, well, techie."
Goldstone’s team was great at coding and setting up an ecommerce website – which has digitized over 300 million photos – but they weren't exactly great at writing product descriptions, blog posts, and catchy marketing materials. For that, they turned to contractors.
Whatever skills you’re looking to add, contractors can help you get the job done.
The paperwork involved in hiring a contractor is much simpler than for an employee. Because you generally don’t have to cover payroll taxes, unemployment insurance, or social security, hiring a subcontractor is easier. All you need is a subcontractor’s agreement.
That said: you may be responsible for making sure subcontractors have Workers’ Compensation Insurance. You don’t necessarily have to buy their coverage; just check to make sure they’ve got it.
Why do you have to check for Workers’ Comp? While you generally don’t owe benefits to subcontractors, there are two cases where you might have to ensure that they have Workers’ Comp:
- A client contract requires you to have Workers’ Comp. As the managing contractor, it becomes your responsibility to make sure subcontractors have this coverage.
- State law requires it. Most states don’t require you to have coverage for subcontractors, but some might.
If you face either of these situations, you can require subcontractors to carry their own Workers’ Comp. Make sure to outline these requirements in your subcontracting agreement.
Next: Always Use Written Subcontractor Agreements