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. ๐Ÿ˜‰
  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.

12 Responses

  1. Good article, Danielle. This is important information. I’ve seen new graduates who are being taken advantage of by being classified as ‘contractors’ but treated like low-level employees, with no control over schedule or how work is done. Thanks for educating all sub-contractors.
    Barbara

  2. Whitney Eiland says:

    Thanks again Danielle, very helpful info. I’m going to stick to being an administrative consultant. I’m going to continue to research and use the tools necessary to be a skilled, experienced consultant.

  3. suz says:

    Getting your client to understand the legal aspects of your relationship is not easy. They seem to chose to ignore that they can’t be your boss. I have gone as far as print-out the IRS rules on contracting with independent contractors and explained that I don’t think either of us want to tick off the IRS.

    I even fired a client who misled me on the job scope and then tried to schedule working hours and location of my job performance.

    You post is right on point.

  4. Hi Suz ๐Ÿ™‚

    That’s why I’m always educating people to stop calling themselves assistants and independent contractors. Those words miseducate clients. And as you’ve found, you can talk until you’re blue in the face about the fact that you’re a business owner, etc., etc., but you negate all that when you call yourself an assistant. All clients hear is the word “assistant” and they only understand that word one way–employee.

    Same thing with independent contractor. The term has been misused to the point that the general population thinks is means “employee I don’t pay taxes on.”

    This is why the choice of terminologies you use in your business and in your conversations with clients is so critical to how you educate them and pre-set proper expectations and understandings.

    Here is another recent post on this topic you may not have read yet:

    http://www.administrativeconsultantsassoc.com/blog/2011/11/16/you-are-not-an-assistant/

    All my best!

  5. Rachel says:

    I want to clarify whether it is a problem in your opinion that my clients sometimes present me to their clients as their assistant, business manager, etc. I set my own hours, use my own equipment, set my work processes, etc. They want the interaction I have with their clients to come from their company and their team. Thanks!

  6. That’s a tough one because it can be confusing to clients to get an email from someone outside of the company. In the past (I’ve since discontinued this policy in view of the IRS’s increased scrutiny of independent contractors in recent years) I’ve had clients set up an email address for me to use on these occasions.

    However, the fact remains, you can’t and they can’t have any appearance that you are an employee–because you’re not. So if they want those interactions to come from their company, than they need to deal with them themselves or hire an actual employee.

    Explain this to clients and then offer to them that what you CAN do is use your own email address and simply introduce yourself to the client (if this is your first interaction with them) as so-and-so client’s Administrative Consultant and you are contacting them to help them with X.

    Remember, you aren’t anyone’s assistant and it’s not your job to do everything for clients. If they want someone who does everything, they need to hire an actual employee.

  7. Under a Colorado audit as to whether or not the subcontractors I hired were employees or independent contractors, it was stressed that the subcontractors MUST have their own business name, EIN and have their own clients. So, as a requirement of my subcontracting out projects, the Administrative Consultant must prove these items to me (and payment of their invoice is paid to the company, not them individually).

  8. Claire Smith says:

    Hi Danielle

    Another great read, thank you!

    A couple of my clients have an email address set up for me which does give the impression that I am employed by my client. They do this because it isn’t confusing for their clients and it gives a more professional image however if this is not something I should be doing then I really need to consider that. It will be a tough one explaining that to my clients as I have been working with them for two years.

    So if I am understanding this correctly, if I am sick or on holiday and my clients still need continued support, I can give the work to a subcontractor and they make contact directly? I do know that my main clients would rather manage without anyone while I am away but surely I have to tell them I have a ‘back up’ in place?

    Happy Thanksgiving!

  9. As always Danielle, you hit the nail on the head. You stand up for the industry and I, for one, really appreciate this. I have been approached to this kind of work, sad to say i did a few brief trials with it, and then treated like an employee. Not at all what I am! You have helped so many of us stand up for who we are as a business owner. Thank you so much!
    Have a great Thanksgiving!
    ~Annette

  10. Hey Danielle,

    Honestly, when I first started out with my business I was taught everything you are saying in this blog about subcontracting. I even came once to accepting being a part of a team when I was interviewed (red flag) from someone who had their own assistant team. When I heard that I would need to pay 20% of my earnings to the business because they would do most of the marketing to get the clients I got a bad feel and kindly told them I was not interested. I thought why in the world do I need to have my own business if I’m going to be a working for someone else! At first I thought subcontracting was a good idea until I came across your site and was educated of what it is all about and how it has nothing to do with administrative support and partnering with clients one on one in a collaborative relationship. Thank you again for the biz savvy information!

  11. Jenny says:

    Wow. This article is really helpful and in general I am loving all of your advice and having numerous ‘ah hah’ moments!

    Just like Claire, I would be keen to know your thoughts on clients providing us with a company email address and how that therefore implies that we are part of their team. How would you manage this?

    I have been working for 1 client for 4 years now, and we have an amazing relationship, albeit feeling much more like an employee arrangement as I read through your material. At the same time, they are very supportive of my desire to build my business, and I believe they will support me as I continue to grow. I feel they understand the value that I bring to them and which I can give to others, so feeling very lucky!

  12. Hi Jenny ๐Ÿ™‚

    Thanks for commenting. Regarding email addresses, be sure to read the other comments here.

    This post (and comments section) addresses this topic and will help you as well:

    http://www.administrativeconsultantsassoc.com/blog/2013/04/03/dear-danielle-client-is-about-to-ask-me-pose-as-employee/

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