Forum Discussion
Subcontractors vs Direct Labor
Would you consider hiring subcontractors instead of hiring direct labor when talent is hard to find in your local market? My business has had a lot of success partnering with other companies to compl...
It definitely varies by business. I have a maintenance (landscaping and snow removal) and construction (mostly remodels, average job size $25k):
- Recurring maintenance work - skew towards employees
- One off job based work - skew towards subcontractors
On the construction side of our business, we have a small base of employees, mostly carpenters and painters, who are great culture fits and versatile (for example - most can drive a plow truck). But the vast majority of construction expenses and billing comes from specialty subs.
From a financial perspective, many business owners - when looking at the cost of employees in pricing work - do not always acccount for their full cost beyond their hourly rate or base salary. The full cost includes:
- Payroll taxes
- Workers comp
- Non-billable time (travel, admin, equipment maintenance, etc)
- Any take home vehicles you might provide your employees
Billable rates for employee should be based on target gross margins accounting for those additional employee related costs.
