Subcontractor Costs and Payment Terms
Subcontractor costs include all costs by subcontractors for the project. A subcontractor is a company or person you hire to help complete a project. As the contractor, you are responsible for the subcontractor’s work.
To be paid, a subcontractor completes a W9 form. This provides their tax ID number and identity. You use the W9 to prepare a 1099 form for tax reporting. Subcontractors receive 1099 forms while employees receive W2 forms.
There are payment timing options for subcontractors:
- 30 days after the claim for non-residential subcontractors
- 10 days after the claim for residential subcontractors
- Weekly or biweekly based on hours worked
- Installment payments
Cost Effectiveness and Profit Margin
Using subcontractors can save on costs like vehicles, tools, training while maintaining flexibility. Compare by calculating hourly rates inclusive of all costs. If the subcontractor rate is lower for comparable work, it is likely more cost-effective.
You want the subcontractor to make a fair profit by covering their overhead. But the rate should be market competitive too. There is no one formula for determining the profit margin; it depends on the specifics of each subcontractor.
Determining Subcontracting Costs
Subcontractor costs include all amounts paid to subcontractors hired to help complete a project. As the contractor, you pay the subcontractor and are responsible for their work.
Subcontractors complete a W9 form with their tax ID number and identity for tax reporting via a 1099 form, while employees receive W2 forms.
There are payment timing options for subcontractors:
- 30 days after the claim for non-residential
- 10 days after the claim for residential
- Weekly/biweekly based on hours
- Installment payments
Using subcontractors can provide cost savings on expenses like vehicles and tools while allowing flexibility. Compare hourly rates inclusive of all costs. If the subcontractor rate is lower for similar work, it is likely more cost-effective.
Aim for the subcontractor to make a fair profit by covering their overhead. But ensure the rate remains market competitive too. The exact profit margin depends on each subcontractor’s specifics.