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Subcontractor Vs. Employees – How to Pick what’s best for you?

21 April 2021

Most business owners who are just getting started have a big question in mind when it comes to hiring people which is - “Should I hire an employee or a subcontractor?” Before you make that decision, it is important to know the difference between the two and the pros and cons that come with working with a subcontractor or an employee.

 

Who is an Employee?

Legally, an employee is a person who has been hired to work for another company or individual (known as an employer). He or she can work in a full-time or part-time capacity but is subject to the employer’s directions while on the job.

 

When it comes to your janitorial business, as an employer you are responsible for the provision of supplies, you are required to remunerate employees on the 01st and 15th of every month or as per state laws, and you are also accountable for the mandatory tax and insurance payments.

 

Depending on how large your business is, you are required to pay your taxes bi-weekly, monthly, or quarterly and this is a cumbersome and time-consuming process, given the documentation involved. 

 

However, the biggest advantage of hiring an employee over a subcontractor is the complete control you have over them.

 

If you are looking to standardize operations and want more control and say in the day-to-day running of your business, then hiring employees work best. 

 

Who is a Subcontractor?

More and more business owners are now hiring subcontractors either on a project basis or when none of their existing employees possess certain skill sets.

 

What sets subcontractors apart from employees is the terms of payment. A subcontractor will invoice you once their project is completed or as per the schedule agreed in the contract. Since the IRS considers subcontractors to be self-employed, they are responsible for paying their own taxes. 

 

Employee or Subcontractor? How Does it Matter

The basic and most visible difference from the business perspective is that an employee is on a fixed payroll while a subcontractor is not. And this difference I believe is what matters the most when it comes to deciding between the two. When you are a growing business, payments to employees take out a big chunk from your cash flow, and you are left with little to nothing after all sundry expenses are taken care of.

 

As a business owner, you can pay the subcontractor on receipt of payment from the client and you are still left with profits since most operational expenses are borne by the subcontractor. 

 

Finding the Right Balance

The big pro with subcontractors is negotiation power that lets you choose your payment dates and set milestones for the project to ensure the subcontractor follows through. Since it is a partnership, the contractor doesn’t require any direct management or supervision. 

 

There is no doubt, this is much better for a business’ cash flow. If you’re trying to expand by thousands of dollars each month you need money to be able to reinvest back into the business. Employees and fixed costs can drag you down.

 

Hiring a subcontractor is more profitable, but once you get to a certain size and have more operations you will need a workforce that’s stable, regular, and present at a given time daily and that’s when you’re better suited to hiring employees.

 

Wrapping Things Up

At the end of the day, your decision to hire a subcontractor or an employee will depend on how you want to scale your janitorial business. If you are thinking more control and small business, then employees are your best bet. On the other hand, if you are envisioning massive growth and are comfortable with not having much control over the cleaning and other operational aspects of the business while scaling wide, then subcontractors are the way to go, provided you have your processes in place and are ready to invest in their training.

 

As a business, you can have both employees and subcontractors but it is important that you clearly differentiate between the two. 

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