Subcontractor vs Employee - Virtual Assistant Forums

Shaheda · #1 (**permalink**) 08-07-2009

I wasn't sure where to put these questions, so here I am. I'm starting my business while working full-time. Ideally, I want to focus on getting clients and outsourcing the work to subcontractors. I know there are benefits to having subcontractors vs employees, I just cannot find out exactly what those benefits are. Also, I don't know how my legal obligations differ. When I registered my business, I listed the profession as word processing, typing, etc, but if I outsource the majority of the work, should I be classified as an employment agency instead? I know its a lot of questions, so whatever advise I get for any of them would be greatly appreciated.

virtual writing · #2 (**permalink**) 08-08-2009

If you're coordinating the work of subcontrators for VA clients you've secured, you're a VA project manager, not an employment agency. Believe me, you'll be immersed in the work your clients want performed.
Subcontractors come equipped with skills, and they take care of all their own overhead (and legal protections, far as I know). When you contract with another VA to perform tasks for your clients, it's almost like a joint venture or partnership.

wiemergal · #3 (**permalink**) 08-08-2009

If you have employees, you will be responsible for employment taxes and reporting to the IRS, workers compensation, and local state requirements. In the end, this cost is usually higher. And you may need to supply them items to complete their job.

Subcontractors, you hire with the required equipment to complete the job. Also, once you have paid their hourly fee or contracted monthly fee, you have no other obligations. You will need to get W-9(IRS Form) Information from them because you will need to send 1099's to each of them at the end of the year.

Here is guidelines put out by the IRS for those with this questions

Robyn

Shaheda · #4 (**permalink**) 08-08-2009

Thank you Mary. I never though of myself as being a project manager, but that clearly defines what I'll be doing. While researching this topic, I came across an article that said a lot of VA's that are outsourcing their work to others should be obligated to pay employee taxes and not get away with classifying workers as subs. Then they spoke of the legal ramifications of doing so, and it caused me to panic, so I figured I'd speak to my VA forum family about it. I truly appreciate your response.

Shaheda · #5 (**permalink**) 08-08-2009

Robyn, have you used subs before? Do you know if they determine their rates beforehand, or if its negotiable? Thanks for the IRS link. That was also helpful. My husband does consulting work, and he gets a 1099 from his client at the end of the year. I never tied that into the VA business. I want to make sure all my i's are dotted and my t's are crossed before starting anything, and becoming as familiar as I can with uncle sam will definitely be in my best interest. I appreciate you pointing me in the right direction.

wiemergal · #6 (**permalink**) 08-08-2009

I am actually working as a sub right now for my VA Business (bookkeeeping). But I also own a tax office, which is a different business. I do have employees for my tax office.

The sub I am currently working for, we discuss the client and each client has a different rate. We discuss their needs and what I would charge, and then we agree on what the rate will be.

I have seen posting where VA's have been giving a discount on their normal rates when they do sub work. If I remember correctly, it is a split of 30/70, where the Project Manager get 30% of the charge to the customer. If you try this, it should get you close.

Robyn

Shaheda · #7 (**permalink**) 08-08-2009

I'm glad that you posted the typical ratio, because if not, I would have short changed myself. Do you usually have your subs speak directly to the clients, or do you serve as the liaison between the two? I'm assuming theres a non-compete clause in sub contracts, but I'd still be a little paranoid about a sub negotiating a better deal just to make a greater profit.

wiemergal · #8 (**permalink**) 08-09-2009

I do speak directly to the customer, but I would like to hear what other do in regards to this. I do have a confidentially agreement but cannot sign a non-compete because I am in the same business as what I am getting sub out to do. I think if you look around the sight you will hear some bad stories about subs, but you also can have great team work.

virtual writing · #9 (**permalink**) 08-09-2009

Shaheda - Not as a strict rule, but for the most part, I would say that the sub does not communicate directly with the client. That's what the Project Manager is there for. So the client is communicating with just one person, while multiple jobs are getting done.

kathiemt · #10 (**permalink**) 08-09-2009

I encourage you too, to speak to your Accountant. Too many people try to find all the answers on the web but need to add to that, the experience and knowledge of someone who knows your business, knows your financial situation and is in the best position to advise you what is needed.

Remember also, if you subcontract to VAs in other countries then the requirements for the 1099 may not be the case. But your accountant will be the best person to advise you what's needed for this.

kathiemt · #11 (**permalink**) 08-09-2009

Another thing I want to add. I urge you to first experience your VA business and learn what it's like to deal with clients and provide services for them before you start sub-contracting out work.

In the corporate world it would be very unusual to place a new project manager in a role who has absolutely no experience in that particular industry. You need to think about this very carefully. Until you have experience of running a VA business and dealing with clients, my own personal opinion is that you wouldn't yet be eligible to project manage a multi-VA practice - unless you have considerable experience in something similar.

Shaheda · #12 (**permalink**) 08-09-2009

Originally Posted by virtual writing

Shaheda - Not as a strict rule, but for the most part, I would say that the sub does not communicate directly with the client.

I agree that its best to have little or no contact between the sub and client, but would also like to hear feedback from others regarding this. Thanks for your input!

Shaheda · #13 (**permalink**) 08-09-2009

Originally Posted by kathiemt

I encourage you too, to speak to your Accountant.

I hadn't thought of speaking to my accountant, but he would be a great source regarding this. Thanks for mentioning that.

I agree about getting to know the business before getting subs involved. My original plan was to be a VA and bootstrap so I can have funds readily available if any subs are used. I'm sure that all clients arent prompt with their payments, but I don't want to wait for them to pay my future subs for work they've completed. Thanks for the tips!

Wordpro Wizard · #14 (**permalink**) 08-09-2009

What do you (we) view as a sub? Everyone's situation is different. If, for eample, I get a flood of transcription (and where I live it is cassette, traditional, not into digital) I would hire locally by the hour to come into my office where I can monitor the work and teach ... 30 years in the business I can teach.

Monitoring the work? yes, nothing goes out unless it is 101% and it carries my name so I have to review everything ... I knw, I'm anal

wiemergal · #15 (**permalink**) 08-09-2009

Originally Posted by Wordpro Wizard

What do you (we) view as a sub? Everyone's situation is different. If, for eample, I get a flood of transcription (and where I live it is cassette, traditional, not into digital) I would hire locally by the hour to come into my office where I can monitor the work and teach ... 30 years in the business I can teach.

Monitoring the work? yes, nothing goes out unless it is 101% and it carries my name so I have to review everything ... I knw, I'm anal

This sounds more like an employee, than a sub. In my opinion

Robyn