Has anyone acquired a business that used subcontractors rather than employees?
June 04, 2024
by a searcher from INSEAD in New York, NY, USA
(meaning their core work is done by subcontractors rather than employees)
What are things to look out for if considering such a deal or ways to protect yourself from inherent risks when acquiring?
from Swinburne University of Technology in Melbourne VIC, Australia
On the good side, you can ramp up / down as you need, and the seasonality of the business makes that interesting. It is also easier to say no to works you don't want to do, because you don't have as much pressure to "get the guys busy". Our model is to work 3 days a week in trees, which makes a lot of sense with contractors, and allows us to have a slower tempo / book more weeks in advance.
On the less good side, I would recommend a full timer as a "crew lead" / "site manager". Regardless of how experienced the subcontractors are, the reason they are subcontractors is usually because they just want to get in, climb and go home. So we have someone on staff that takes care of all the paperwork, site set ups, site audits etc... This is getting very long so feel free to send me an email and we can talk about it some more.
from University of Southern California in Mid-Atlantic, USA
The laws will vary by state. The IRS may also see red flags here. You will need to evaluate whether the contractors should actually be listed as employees. If so, are they willing to convert to W2 status or will they jump ship? There could also be significant liabilities for unlawful past employment practices and maybe even lawsuits from the employees if they were misclassified and owed overtime and/or other benefits had they been properly classified.
I'm no expert - these are just concerns I've heard along the way. Definitely bring your counsel into the mix immediately.