Hiring and paying a subcontractor is different from paying your regular crew members that work for your home improvement company. Before you write a check to a subcontractor, make sure you ask yourself these questions first:
Do you have a contract with them?
Be aware that hiring a subcontractor is different than someone who works directly under your company. Come up with an agreement, review with the subcontractor, and have them sign it.
There are free templates for this online, or you can hire an attorney to help you. This agreement should include:
- What work they are expected to do.
- How you intend on paying them, how much, and if they will be paid hourly or by the job. (Include when payments would be made and what happens if those payments are late.)
- Clearly identify them as a subcontractor - not an employee.
- Clarify that taxes are not withheld from their payments, and they’re responsible for income taxes, sales taxes, Social Security, and Medicare.
- Information on insurance and benefits. As a subcontractor, they need to know they are not eligible for either under the company and should have their own coverage.
- What the next steps are if there is a dispute between your company and the subcontractor.
- A start date and end date for the project.
\ After making an agreement with a subcontractor, make sure to take the amount of money you’ll be paying them into consideration when it comes to how much you will charge your client.
What are my responsibilities when hiring a subcontractor?
Not only will the subcontractor be held responsible for their own taxes, but you’ll also need to make a report of payments over $600 to the Internal Revenue Service (IRS) by filling out a 1099-MISC form. Keep track of the subcontractor’s earnings on this form.
Additionally, if the subcontractor you hire will be doing more than $600 worth of work, they will need to provide you with information by filling out and returning a W-9 form to you.
These forms are meant to help you and your subcontractors file taxes with ease.
How do I keep track of the work my subcontractors do?
To stay organized, it’s important to keep a record of the work everyone is doing. There’s a chance you’ll have more than one subcontractor working for you, so you’ll want to find a way to keep track of everything. A great way to do this is to request invoices from each subcontractor with details on the jobs they complete, and how much you owe them. Request these either digitally, physically, or both ー whatever works best for you. File them away accordingly.
How do I pay subcontractors?
Last, you have to consider how you will pay your subcontractors. Here are a few different payment methods:
- Credit card- systems like Square are useful for small business owners. They even provide digital invoices.
- Direct deposit- this is a very common form of payment because it’s more secure than issuing a paper check.
Note for Direct Deposit
- To begin the direct deposit payment process, you’ll need to make sure you have an Employer Identification Number (EIN). (This is not only needed to start a business, but for each step along the way, such as hiring employees and getting a business bank account, which is necessary for direct deposit.)
- Click here for a list of popular online payroll services if you'd like to set up a direct deposit system for your business.
Working with subcontractors may be a little different than working with crew members that are part of your company, however, the little steps that build up to actually paying them are important to make sure you’re doing everything the right and legal way.