Guidance on How to Sub-Contract Work
Although the labour markets in the UK and the Republic of Ireland are fairly well regulated, there are more flexible approaches open to businesses that wish to sub-contract all, or part, of their work. Employing people to carry out tasks means needing to comply with all the various aspects of employment law that might come into force. This is not the case with sub-contracting, however.
The Legal Basis of a Sub-Contract
In short, when you sub-contract work, you are paying for a service provider to undertake certain works within the scope of your agreement with them. This means that you should know exactly what to expect for the price you have agreed to pay. This is not always the case with in-house teams of workers, however. After all, employees may need retraining, go off sick or simply be ineffectual.
On the other hand, if sub-contracted work is not carried out to the required standard or delivered on time, there should be a penalty clause in the agreed contract that means you are not financially exposed. Equally, when the job is done, there is no ongoing agreement. Compare that to a full-time permanent employee who you will need to continue to find work for or make redundant.
What Is Sub-Contracting?
As mentioned, when you sub-contract work, you acquire a service in much the same way you would procure a product. Sub-contracting firms will usually bid for some work that you need doing and provide you with a quotation. From this, you can then draw up a contractual agreement that sets out exactly what is expected within the scope of works and the agreed sum that will be paid.
Some businesses win work from their clients and have their own in-house employees that deliver it. A typical example might be a construction firm that wins a contract to build an office block for a developer. If it does the work with its own team of builders, then it is said to be a main contractor. Any work that is outsourced, such as electrical installations or plumbing, is said to have been sub-contracted.
Some companies of this type sub-contract all of the work that is involved. Indeed, some sub-contracted firms will also sub-contract all, or part, of their tasks to other firms, thereby sub-contracting the sub-contracted work, as it were. Bear in mind that sub-contracting goes on in many sectors, not just construction. These include IT, training, garment production, welding and HVAC installation to name but a few.
Is a Sub-Contractor Different From a Temporary Employee?
Simply put, a sub-contractor has a very different relationship with a company that is providing work than a temporary employee would. A sub-contractor may be an employee of a sub-contracting firm or they may be self-employed, perhaps operating as a freelancer or a sole trader. However, they do not enjoy the same employment rights that even temporary employees do.
The main difference between a sub-contracted worker and someone who is on a temporary contract is that they will receive no salary for their work. They are not on the payroll of the business providing the work. Their pay will come from the agreed sum for the sub-contracted work. Equally, sub-contractors do not have other employment rights, such as holiday pay, sick pay or parental leave rights.
Temporary employees, on the other hand, will enjoy some of these rights. In the UK, once a temporary worker has been doing their job for a certain amount of time, they are legally entitled to enjoy all the same rights – and rates of pay – as permanent workers. This is not the case with genuine sub-contractors, however, who remain either in the employment of the sub-contracted firm or have self-employed status.
Any sub-contracted work is only as good as the contract that is written to cover it. In other words, if you choose to sub-contract work instead of hiring people to do it directly, then your agreement must be robust and fair to all concerned. Sub-contractors are not likely to sign a legally binding agreement to carry out work on your behalf if, for example, the agreed payment is likely to be insufficient to cover all costs.
Furthermore, the agreement signed by both parties should be clear about what the scope of works is. Unless this is very clearly defined, it is not always possible to say whether a sub-contractor has truly done what was expected of them or not. Disputes can and do arise so a resolution method may sometimes be included in a contract to help companies settle disagreements without recourse to legal action.
Remember, too, that a sub-contract necessarily means that the person or people doing the work cannot be employees. The big advantage here is that it means sub-contractors are responsible for their own National Insurance and income tax payments. There is no obligation to provide pension provision either. That said, sub-contractors must be genuinely sub-contracted and not really doing the work of an employee or the tax authorities can raise legitimate legal concerns.
Key Considerations When You Sub-Contract Work
When you sub-contract work, you do not just benefit from a flexible approach to manpower acquisition. Although sub-contracting provides versatility in fluctuating market conditions, it also means that equipment will normally be provided by the sub-contracted firm. For example, day-to-day tools will be provided. Vehicles to get to a site will also be expected. The costs for these should be built into the sub-contract.
Equally, turning to a team of sub-contractors, or an expert company that can provide them for you, means being able to obtain the right skill set. Many sub-contractors are highly skilled individuals with the right qualifications for certain types of job. When you sub-contract, you can obtain the skills you need more easily without paying for the ones you don’t.
Overall, many businesses find that they choose to sub-contract because they are more profitable that way. After all, sub-contracting work to experts often means getting things done right the first time and pleasing their customers more. Given that there is no overspend on over-staffing either, it can lead to much greater profitability all-round.
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