The next step is to contact potential subcontractors formally or informally and ask specific questions about the services provided and the terms of the contract. The questions should also aim to assess the subcontractor`s intentions or what they hope to gain from the relationship. Some subcontractors may be looking for a long-term business relationship, while others simply want to gather information to complete their work in a timely and professional manner. Overall, the questions should determine whether the subcontractor is a good fit for the small business client. Ideally, the subcontractor has experience in conducting similar businesses and can prioritize the needs of the small business they deserve. “Consider the service company`s knowledge of your entire company, their willingness to customize the service and its compatibility with your company`s corporate culture, as well as the long-term cost of its services and financial strength,” service provider Carl Schwenker recommended in Money. A self-employed person or a company wishing to carry out subcontracting activity must be duly authorised as a limited liability company or limited liability company in his or her home country. To be subcontracted, the company must be in good standing with the regulations of its country of origin, e.B. via an up-to-date file for its tax returns. For tax reasons, a subcontractor must register with the Internal Revenue Service (IRS) to obtain an Employer Identification Number (EIN).

The EIN is used by the prime contractor to report to the IRS all commercial income paid to the subcontractor. Prime contractors also require subcontractors to be in good standing with their home state, which means the business is up to date with all official filings such as annual reports and tax returns. If the supplier operates in a regulated sector such as construction, it must have a specialized business license issued by the state. Subcontracting is an older business term. Traditionally, this is the practice of using an external company or individual to perform certain parts of a contract or business project. Small business owners can be very experienced in using subcontractors, as subcontractors are a natural part of their industry – just like in construction. In cases where a large enterprise provides a service, para. B example a payroll company, the relationship is again clear and unambiguous – like working with an external accountant who is in business for himself. Problems are also unlikely to arise when increases in activity have to be compensated for by hiring temporary workers in a temporary employment agency. In still other cases, such as the purchase of advertising services, the relationship is traditional and is not considered an outsourcing of a service – even if the relationship is not singular. Most companies that work with advertising agencies also have an in-house advertising manager. Problems for the small business arise when it works with independent contractors, usually individuals, who perform tasks that have been or could be done in-house.

Problems also arise when the company works in such a close partnership with an entrepreneur that interactions occur between the contractor`s employees (and executives) and the company`s own employees. Leaders often blur the line between outsourcing and outsourcing; In reality, however, the two practices are very different. The main differences lie in the degree of control a company has over the work process and whether the work could have been done in-house. Outsourcing is primarily a cost-cutting measure where tasks performed internally are now performed by individuals or companies outside the company and are not associated with it. This is often part of a company`s strategy to reduce labor costs and applies to many areas within a company. The IRS verifies the income reported by a contractor and uses a relationship criterion to verify that the subcontractor is an independent contractor or employee. The measures used by the IRS to infer the relationship between the two parties include determining who sets the rules, who provides the tools and materials used for the work, and who pays the company`s expenses. If the prime contractor sets the rules for carrying out the project, provides the necessary tools to carry out the project, and pays all of the subcontractor`s business costs, the IRS treats the subcontractor as an employee. In this case, the prime contractor must pay taxes and social security benefits. The supplier company also needs in-depth know-how. Prime contractors choose subcontractors based on their proven ability to do the job. This is demonstrated by professional references and examples of work done in the past.