Question: How do you handle rates in subcontracting situations? Do you use a percentage markup, a specific dollar-amount markup, or some other method?
Response #1: I generally don’t mark up subcontractors at all, because I’m usually billing for my own services on the project and don’t need to make money on the sub. When I do mark up, it’s by a specific dollar amount.
Response #2: I typically mark them up by 20%–sometimes more, if their rate is considerably lower than mine. I figure that the next time, I may be doing the work myself, so no point in setting up an unrealistic expectation about costs.
Response #3: It depends on the service provided. I’m incorporated and can add subcontractors as employees and pay them through payroll. Or I can pay subs on a 1099 basis. I typically give the subcontractor the option. Depending on the level of service my company provides for managing the contract and paying the subcontractors, I charge any where from 2% to 10% to cover my administrative and finance costs as I almost always have contractor payments due before I collect from the client. A 2% markup is what I charge for providing a billing service and paying the subcontractor on a 1099 basis. A 10% markup is what I charge for subcontractors on payroll, with slow-pay clients, that require some level of project management support.