Subcontracting work: definition, benefits and tips

By Indeed Editorial Team

Published 7 November 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When a business is unable to complete a task in-house, it may consider working alongside an external company or an individual that has the necessary skills. Modern businesses may assign work externally by using subcontracting or outsourcing. Although the two terms are commonly used interchangeably, there are significant differences between each method depending on your overall goals and individual circumstances. In this article, we explore what subcontract work is, why subcontracting is important and how it differs from outsourcing.

What is subcontract work?

Subcontract work is the practice of assigning a specific contract, project or task to an external company or individual. The specific tasks a subcontractor works on are defined early on in the project. In the majority of cases, a businessuses subcontracting when it's unable to complete the task internally, due to either a lack of knowledge, skills or budget. During the project, the external company stays in close communication with the hiring business, which retains a considerable amount of control throughout the project.

An example of subcontracting is a property developer hiring a marketing company to assist with their marketing campaigns. The developer is perfectly capable of building and selling the development they're working on yet they're unable to create computer-generated images and brochures to use in a larger marketing campaign. The developer hires a marketing agency to complete the job, and when the development is sold out, the contract ends. This is a specific example of how a lack of skills requires subcontracting to complete a project or task.

Related: What is outsourcing and how does it work? (plus advantages)

What is outsourcing?

Outsourcing is a similar concept but is generally done for budget or time-management reasons, rather than a lack of skills. Although the business has the capacity to complete the tasks at hand, they outsource the work to another entity instead, leaving its key personnel free to work on higher priority projects. Outsourcing is a key part of business strategy and business economics, allowing an organisation to use their resources more effectively. While subcontracting has become synonymous with outsourcing over the years, the two remain distinct.

Outsourcing is often ideal for businesses that maintain low overheads and generally opt for cost-effective solutions. By outsourcing administration work, a business keeps operating costs low while allowing key members of staff to focus on sales, marketing or production. The third party generally operates independently of the hiring business, communicating on a regular basis as defined in a contract. A business may outsource work to other countries in an effort to keep costs low, ensuring that they keep operating costs within budget without compromising the tasks they have to complete.

Related: Benefits of outsourcing (with tips for hiring a contractor)

How is outsourcing different to subcontracting?

The key difference between outsourcing and subcontracting is the reasoning for adopting each method. Subcontracting is typically used because a business is physically unable to complete a task due to a lack of skills or ability in the business. Outsourcing is used to complete low-priority tasks in a cost-effective way, even though the business could complete them internally.

Depending on the structure of the business and the contract, a hiring business typically has more control over a project when they're working with a subcontractor as opposed to outsourcing work. This is because a subcontractor is working closely on a bespoke project, while outsourced work is generally more low-priority, easily completed work that falls to a company that specifically operates on an outsource basis.

Related: How to become an independent consultant (with skills and salary)

7 reasons why subcontracting is useful for businesses

There are a number of different reasons for a business to consider subcontracting, particularly if they're working on a large project or have a number of specialised tasks that they have to complete. Subcontracting comes with numerous benefits that allow a business to provide a complete service and work alongside other exceptional businesses. The primary reasons for subcontracting work include:

1. Provdes project support

If a business is just starting out or is scaling work to a point where they require help with a bigger project, subcontractors can offer vital support and expertise. A business that wants to generate more revenue without having to hire more employees may benefit from utilising a subcontractor, which has the potential to provide exceptional work quickly and efficiently. A business may want to expand the scope of the project and deliver a more bespoke solution, which requires the skills of a subcontractor.

2. Offers more flexibility

As with temporary employees, subcontracting provides flexibility for a business. If a business is working on a single project that isn't a regular occurrence, a subcontractor may help them complete the necessary tasks without having to commit to new employees or resources. Since hiring businesses still generally retain a substantial amount of control over a project, it's viable for them to maintain a high standard of work despite operating with an external third party. Maintaining flexibility allows a business to also adapt to external challenges, such as changes to a project from a client or unforeseen issues.

Related: How to be flexible at work (with steps and tips)

3. Helps provide expertise

For a business that specialises in a particular service or product, they may sometimes be unable to complete certain elements of a contract. A subcontractor allows them to take on that work by providing specific expertise in areas where the business doesn't have the skill set. Having this expertise available opens up new avenues for revenue growth and ensures that the business is able to maintain a successful operation. A subcontractor may offer solutions that make other elements of the process more efficient, which helps a business in the long term.

4. Improves productivity

The most effective aspect of delegating subcontract work is the potential boost to productivity. By contracting work to other individuals, you open up more resources within the business to complete other elements of the project. This vastly increases the productivity of the business and allows you to focus on core business objectives or high-priority tasks that require completion. This aspect of subcontracting is useful if a business is training a team of staff and has to complete tasks while also providing professional development for employees.

5. Offers shorter commitments

Hiring staff is a costly part of running a business, and subcontracting mitigates the need for hiring new employees. Using subcontractors also removes the need for signing lengthy contracts, allowing you to choose when you require the productivity boost of a subcontractor. This allows you to adopt a much more agile business structure, which is useful for a small company that is looking to scale in terms of revenue and workload. Similarly, if you start a project with a subcontractor and find it doesn't meet expectations, it's easier to find other subcontractors to work with.

6. Improves cost efficiency

The investment of hiring new staff and purchasing new resources presents a risk for small businesses that are scaling or large businesses moving into new sectors. Subcontracting is a cost-efficient alternative that reduces overall risk for several reasons. Firstly, a subcontractor is typically a reliable source of work that has an established portfolio, removing the chance of having any low-quality output that you might find with a new employee. Secondly, once benefits and other employee hiring factors are taken into account, subcontracting is typically much more affordable.

Related: 6 efficiency ratios and how to calculate them (plus faqs)

7. Helps with legal obligations

Since a subcontractor is typically a business or a freelancer, they generally don't come with the same legal requirements as an employee. This not only reduces the amount of associated administration but also removes any potential challenges that might arise if a business decides to work with another individual during the project. For smaller businesses that don't have the capabilities to maintain long-term administration, this is an attractive prospect. Subcontracting can provide a large array of benefits for a business.

Being able to take on more skilled, productive employees with plenty of expertise allows you to scale a company at a much faster rate. It unlocks new opportunities for revenue growth due to the new opportunities you can take on, and it frees up the existing resources that you already have within the business. With flexibility, subcontracting allows a business to decide when and where it requires the extra help, something that isn't possible if relying on new employee hires.

Tips for finding subcontractors

If you're looking to subcontract tasks out to specialist individuals, first consider whether you require a subcontractor or a full-time employee. If you do opt for a subcontractor, you may consider the following tips on finding the right subcontractor to suit your circumstances:

  • Work with a subcontractor that has a proven track record of delivery and high performance.

  • Meet with the subcontractor initially to get a feel for their working style and how they may impact the project.

  • Ensure regular communication with the subcontractor to ensure a successful project outcome.

  • Set expectations for the subcontractor so they understand exactly what you're looking for from the project.

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