Who is a subcontractor? In this article, we will explain who such a specialist is and what the cooperation and settlement look like.
Who is a subcontractor? – Definition and scope of activities
A subcontractor is a person or company that performs a given work on behalf of the main contractor (principal), based on a concluded contract. It is in the contract where a given subcontractor’s scope of activities is described, as well as other issues, for example, remuneration or completion date.
At first, when we ask the question of who is a subcontractor, the answer may be associated with the construction or industry sector. However, the use of that term is much broader. Here are examples of service categories provided by subcontractors:
- coding and IT (mobile and web applications, server administration, website subcontractor);
- marketing (SEO subcontractor, social media support, running advertising campaigns);
- design (graphic design, web design);
- translations (translator subcontractor);
- admin support (virtual assistant, data entry, customer service).
Therefore, the subcontractor may relieve the entrepreneur of the performance of various tasks. However, before you decide on such cooperation, let’s analyze the benefits and risks associated with it.
Contract with a subcontractor — what to pay attention to?
In the case of cooperation with a person running their own business, a B2B is the most often used form of contract. In other cases, parties sign a mandate contract or a specific task contract.
However, regardless of the type of contract signed, it is worth paying attention to the following issues.
Subject matter of the contract
In other words, the subject matter of the contract is the purpose of concluding a given contract. For example, the subject matter of the contract may be the development of a piece of software. However, providing a very precise description is crucial to prevent possible future misunderstandings and disputes between the parties.
If you wish to acquire the copyright to the work you order from a subcontractor, remember to include precise provisions in the contract. Why is it important? Because only the transfer of all copyrights allows you to use and dispose of a given work. So pay special attention to the below elements:
- clearly emphasize the provision on the transfer of copyrights — you can do it in a separate clause in a given contract, or a separate agreement,
- make a provision in a written form,
- specify exactly what work is the subject of the transfer,
- indicate the fields of exploitation of the work, or in other words the ways of using it,
- indicate the moment of transfer of copyrights — it may be, among others, the moment of receipt of the work or payment of the subcontractor’s remuneration,
- obtain permission to exercise derivative copyrights to works — especially if, as a buyer, you plan on making changes, e.g. translation,
- take care of placing ownership records in the media and, in the case of software, the transfer of source codes,
- include provisions that oblige the subcontractor not to exercise copyrights against you (as the ordering party),
- regulate the issue of remuneration, in particular, whether a separate remuneration will be paid for the transfer of copyrights.
As an entrepreneur, you should properly secure your interests, so in the contract with the subcontractor, specify:
- What do you consider confidential information?
- For how long is the subcontractor obliged to keep the information confidential?
- What are the penalties for possible failure to comply with the confidentiality obligation?
- What should the subcontractor do (after the cooperation finishes) with the materials, documents, or accesses previously made available to them?
Personal data protection
From 2018, all EU member states must comply with the provisions of the Personal Data Protection Act. In the case of cooperation with a subcontractor, you will probably be obliged to entrust them with personal data, e.g. of other employees. Therefore, it is crucial to properly formulate the provisions in the contract that will follow the GDPR.
Scope of responsibility
Entrepreneurs care about the timely and proper performance of the commissioned tasks. To protect your interests, you can therefore ensure that provisions are included in the contract, e.g. contractual penalties in the event of delays in the execution of the order.
Advantages and disadvantages of cooperating with subcontractors
The main advantages of hiring subcontractors include:
- increased efficiency and effectiveness — if the performance of a given task requires specialised knowledge or skills, the subcontractor will perform it more effectively than an entrepreneur,
- saving time — outsourcing of tasks allows the entrepreneur to focus on the main activity of their company,
- increased competitiveness — the tasks carried out by the subcontractor are aimed at improving the quality of the products/services offered. Improved quality may incline the entrepreneur to raise prices,
- the possibility of increasing competencies — cooperation with a subcontractor may be an opportunity for an entrepreneur to acquire new skills directly from a specialist in a given field, especially when hiring foreign freelancers.
Cooperation with a subcontractor also entails certain risks and challenges:
- the need to check the reliability of the subcontractor — the person or company to which the entrepreneur entrusts the execution of the task may turn out to be dishonest, not perform the work as expected, and/or not have the necessary knowledge and skills,
- lack of communication and inability to set expectations — effective cooperation requires the entrepreneur’s ability to specify their expectations and the ability of both parties to communicate reliably and openly,
- formal issues and settlement — properly writing down the contract, settling accounts and other administrative tasks may prove to be a challenge.
Although cooperation with a subcontractor brings many benefits, you should be aware of the potential risks. Entrepreneur can minimize their negative impact by securing themselves with properly constructed provisions in the contract.
What does cooperation with a subcontractor look like?
Selection of subcontractor
In the first step, the entrepreneur must decide what job they want to delegate and to whom they will entrust its execution. At this stage, they may ask potential contractors to submit portfolios to verify their skills and experience.
But where to find subcontractors? Useme’s freelancer base is a proven source. The entrepreneur can easily reach specialists with specific skills and then send a job invitation. Useme also allows clients to post their jobs, to which potential subcontractors can apply.
Brief preparation and signing of the contract
Both the brief and the contract aim to precisely define the principal’s expectations and the scope of the subcontractor’s work. In this way, the risk of inadequate or improper execution of the order is minimized. In addition, the provisions containing information on, among others, the date of implementation, remuneration or liability, protect the interests of both parties to the contract.
In the case of cooperation concluded through Useme, the entrepreneur does not have to worry about formalities. The platform performs and takes care of all tasks related to the preparation, signing and ensuring the correctness of the contract in relation to the provisions of the law.
Execution of work and settlement. Does the subcontractor issue an invoice?
After the work has been completed by the subcontractor, the entrepreneur should verify that the completed job complies with the scope and expectations specified in the contract. If there are no reservations, appropriate remuneration must be paid.
Such a job can be settled in several ways. A subcontractor who owns a company issues an invoice. Otherwise, the remuneration is usually paid based on an order contract or contract of commission. The latter, however, means that entrepreneurs are subjected to additional employer obligations, such as, for example, payment of appropriate contributions or appropriate documentation storage.
Therefore, from the principal’s point of view, a more favourable form of settlement with the subcontractor is the issuance of an invoice by the subcontractor. What if they do not own a company?
Can a subcontractor without a company issue an invoice?
There is a way for a natural person who does not own a company to issue an invoice. Useme comes to the rescue. From the legal perspective Useme becomes the employer of your subcontractor and signs a contract with them. Then Useme sells the work to you based on a buyers/seller contract. After the freelancer/subcontractor uploads the completed job to the system, the freelancer gets paid in 48h and the entrepreneur can easily download a tax invoice (regardless of whether the freelancer has their own company or not).
Useme takes on the employer’s obligations,and then resells the subcontractor’s work to you based on the purchase and sale transaction. The freelancer, on the other hand, receives their remuneration within 48 hours of the end of cooperation. This is a great way to prevent illegal labour.
Who is a subcontractor? Thanks to today’s article you already know who the subcontractor is, what tasks they can support you in, and what opportunities and risks are associated with hiring freelancers. If you decide to outsource tasks to an external subcontractor, remember that you can minimize the risks and obligations by choosing to cooperate through Useme. Thanks to the extensive database of freelancers, you will easily find the right specialist and forget about the related formalities and settlements.