Archive for November 21st, 2011

What You Need to Know About Subcontractors

I see so much confusion and ignorance about subcontractors in our industry. I say “ignorance” because so many aren’t so much confused as they are completely uneducated or misinformed about what a subcontractor is and how you work with one.

The very first thing to understand is that subcontractors are not part of your team.

There are legal implications to saying someone is part of your team. And the fact is, no one is legally part of your team unless they are an actual employee.

So what is a subcontractor?

A subcontractor is no different from you–an independent business. When you hire a subcontractor, you are a client to them, just like any of their other clients. They are not part of your staff. They don’t “report” to you. You don’t manage them. You don’t supervise them. You don’t “train” them. You don’t get to dictate their schedule or how they do the work in any way. There is no special “employee I don’t pay taxes on” privilege here. This is the law, plain and simple.

It’s only called subcontracting because they are doing work on behalf of your company. That is, you have outsourced (subbed) your own company’s service (the thing you are in business to do for clients) to another company. It’s sort of like ghost-writing. They are doing something for you as if they were you. They don’t get credit for the work because it gets delivered to your client as if it were your work.

It’s also typical that they accept the work at a reduced rate because the clients are yours, not theirs, and you need to maintain some kind of profit margin.

There’s a place for subcontracting. Just not in the way that many are doing it in our industry.

First, many are flat out violating the law. You do not get to work with what amounts to an employee, but pay them as an independant contractor. And if you are operating what you term a “virtual staffing agency” or similar, you are running nothing more than a temp agency, just like any other. And unless those “staffing” people you are hiring out are your employees, you are violating the law.

Second, even when using subcontractors correctly, you make it far more difficult to command professional fees and earn well because you have commoditized the work and devalued the relationship. When you do that, it lowers the perceived value in clients’ minds and they are less willing to pay well.

If you must use subcontractors (and like I say, there’s a time and place for them in any business), here is my advice:

  1. If your business model is one where you are merely farming work out to other companies (i.e., subcontractors), that’s certainly a viable business model. But it’s not one of administrative partnering. It’s the low-quality, assembly-line, McDonald’s of service models. Get clear about that.
  2. To be in compliance with the law, do not call subcontractors part of your team because they are not. They don’t need to be on your website and they don’t need to be given credit for the work. Anyone who subcontracts for you needs to understand that as well. Subcontracting is generally just a means for people to supplement income and revenue streams in their business. If they want to be recognized and get credit for the work, they need to get their own clients. 😉
  3. Never outsource your core competencies. You can’t outsource a relationship and this is the very core of administrative partnering. It’s part of what makes it so valuable and why clients are willing to pay more for it. You can’t build with a client the kind of shared body of knowledge, intimacy, intuition and understanding of a client’s business if all the work is spread out over many subcontractors.
  4. Rather than turn into a McDonald’s subcontractor farm, and being forced into becoming a people manager and volume-driven, assembly-line style business (what Seth Godin refers to as “racing to the bottom”), partner with your own Administrative Consultant. Just one client can pay for the investment, and it opens all kinds of income and freedom possibilities for you. When you get support for yourself in your business just like your clients are getting support from you, you create more “space” in your business, more time to work on your business, you can take on more clients if that’s what you want to do or just have more time away from the business. All without the issues of reduced profit margins, multiplied and complicated administration, and need for volume of clients that a subcontractor farm comes with.
  5. Set everyone straight who comes to you wanting to “add you to our virtual work team.” Whether that’s a colleague who wants you to subcontract or a potential client, that kind of language is your first clue that they don’t understand the nature of the relationship and what they’re really looking for is an “employee they don’t pay taxes on.” If they are to be salvageable, you’ve got to have a frank discussion with them about the fact that while you might be very happy to work with them, you are not part of their team, you are an independant business just like their attorney, their accountant, their web designer, etc. This is really important because of the legal ramifications of clients talking about you as if you were part of their company, and it is both irresponsible and unethical to let them continue to believe or understand otherwise.