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Subcontracting is the budget-proof way of locking in your bottom line. Every industry in America utilizes this practice, from retail outlets like Wal-Mart and Home Depot to Capitol Hill. Unfortunately, many companies utilize it to not only help their bottom line, but to avoid paying taxes and insurance. Users beware: The IRS has strict guidelines about what does and does not makea subcontractor. If, for example, you sub out just labor and this person checks in on a daily basis, he is an employee. If he works for you exclusively, he is an employee. Many contractors have been burned, so you need to know what the laws are.
I would hate to try to build my business using only subs. We spend so much time learning in the NWFA schools that I prefer to keep all that training in-house. That said, wood flooring contracting companies, mine included, find that hiring subcontractors can be helpful sometimes. Here are some things I've learned over the years about subbing out work, both from my own experience and from seeing what other contractors have gone through.
1) Subbing installation works best. I sub installation jobs more than sand and finish work because the sand and finish is the end result. If I do have to sub out sanding and finishing, I'll sub out sanding and just the first coat. If I'm doing the last work on the job, I can look over what was done and fix any mistakes. If you sub out installation regularly, a benefit is a lower workers comp insurance rate, because you have fewer of your own employees working with saws and other dangerous equipment.
2) Be on the job. Subs will steal your work. I've had guys hand out their cards on the job site to the homeowners, builders and other flooring accounts. So I like to be on the job in order to prevent this. Also, I like to keep an eye on what's going on—you owe that to your customer. I once received a call from a homeowner telling me one of my subs had made a $22 call to Brazil. If I'm supervising a job site and I have my regular employees taking care of other jobs, the system seems to work fairly well. Also, my subs like the fact that I'm with them "in the trenches."
3) Talk to your subs. I have conversations with subs so they can understand who's buttering their bread. I'm supplying them with perhaps five jobs a month, while going direct to the builder may be the only job they get in a month. I have more contacts and I keep the work flowing. If they understand that, they're less likely to try and take advantage of me.
4) Be more prepared. I have to be prepared when I sub out work. After all, I may have to be the one doing the job tomorrow if the sub does not show up. It's more difficult to manage subs than it is your own workers: Subs don't check in to be dispatched to their jobs, and they don't check in nightly to let me know how far they've gotten. During my learning years, I had several times where a company promised me they would be at the job at 7:30 in the morning—but you would be surprised at the number of times Mrs. Jones called and said the subs showed up at 9 p.m. to sand and coat the floor. The job just isn't as valuable to them because it's not their name that's going on it, it's mine. So again, I make sure I can be at the job site or, at minimum, check in. If you find your sub is a no-show, you need to immediately take over the job. When he shows up and someone else is doing the job, this shows you mean business. I also feel it's important to have a good base of employees you can move around and send to any job if you're in a pinch. My old boss always used to say, "Moving men around is an art." Well said, Bob!
5) Check legality. Many subcontracting companies hire illegal aliens to save money. It's hard to beat somebody who's charging $1.25 a square foot when I'm charging $2.50. But the legal repercussions from hiring an illegal alien aren't worth it. You've seen the government shut down the bigwigs; they won't hesitate to take a small flooring company out, either. So make sure the guys you sub work to are legal; ignorance does not make you exempt from the law. Ask them how long they've been in the country, and ask for a work visa and their tax ID number (have your accountant check the tax ID number). It also helps if the company is incorporated—anybody can slap a name onto their "company," and many can even get insurance, but an incorporated company had to jump through several legal hoops and is fairly well established.
6) Form relationships. The best thing that has happened to me in subcontracting is forming relationships with several companies over the past four or five years. These guys know I pay and won't take advantage of them. Since we work together so often, I know they'll perform the work to my specifications and will be there for me.
If you're over-extended in a busy time (bring back the busy times, please), subbing out work can alleviate some problems, or it may cause more. I find it tough to turn down good work. One of my bosses always told me, "You can't be afraid of a job," so that's why I like to utilize subcontractors as my extended work force. Yet, in situations where I'm getting over my head, I resort to what my old boss's wife would say: "Stay small, and keep it all."