Subcontracting is safe when you have a master agreement, a per-project scope, a written IP assignment, a tax form on file and your client's consent where the contract requires it. Skip any of those and you carry the liability, because as the hiring party you answer to both the client and the tax authority.
This post is general information for US-style arrangements, not legal or tax advice. Check it with your lawyer or accountant before you sign anything.
Delegating and referring are two different things
Delegating means handing part of a project to another independent worker whom you pay and who delivers to you. Referring means passing the client on and stepping out. This guide covers delegating, because that is where the risk sits.
When you delegate, you stay on the client's contract. You still answer for the result. You are now also a hiring party, with the obligations that come with it. Think of it as the first step from a one-person business toward a small agency.
When subcontracting makes sense
The good reasons are narrow. A project needs a skill you don't have and buying it in once is cheaper than learning it. A workload spike is real but short, and a subcontractor gives you capacity without dropping a client. A repeatable slice of your work is well defined and below your effective hourly rate, so handing it off lifts your average without changing your offer.
The bad reasons are more common. You are tired and want fewer hours but haven't raised your prices. You want to scale because the word is in the air, with no plan for what the bigger version does that the small one can't. Or one big client is outrunning you, which is usually a scope creep and pricing problem, not a staffing one.
The Freelancers Union makes a similar point: independent contractors generally can subcontract, but once you outsource, the work reflects on you and you need real subcontractor agreements. If you are weighing a person against a virtual assistant or an AI agent, our piece on your first hire compares the three.
Classification: the trap that costs money
If you control how, when and where a subcontractor works, you may have hired an employee, and the back taxes and penalties fall on you. The US Department of Labor's 2024 rule uses a six-factor economic reality test: opportunity for profit or loss, the investments each side makes, how permanent the relationship is, the degree of control, whether the work is integral to your business, and the worker's skill and initiative. lists all six. No single factor decides. The whole picture does.
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Delivvo runs the client cycle for service businesses: inquiry, quote, contract, deposit and delivery. Payments go straight to your own account.
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Two factors cause most of the trouble. The first is control. If you set the subcontractor's hours, dictate their tools and stop them working for anyone else, you have drifted toward an employee relationship. The second is permanence. Someone who has worked for you full time and exclusively for two years looks very different from someone hired for a defined project.
The IRS uses a related but separate test for tax purposes, and states can be stricter. California's ABC test is the best-known example. The practical takeaway is the same everywhere. Pay by project or deliverable, let the person choose their schedule and tools, don't block other clients, and avoid a standing dependency.
Two colleagues collaborating on a project at a laptop in a bright workspace
Two documents: a master agreement and a scope per project
Use a master agreement once and a short statement of work for each job. The master agreement holds the standing terms: who the parties are, confidentiality, IP assignment, indemnity, a non-solicitation clause so the subcontractor can't approach your clients directly, how either side can end the relationship, and a statement that the subcontractor is not your employee. Bonsai's guidance on subcontractor agreements lists the usual parts: scope, payment, deadlines, confidentiality, IP, termination and dispute resolution.
The statement of work covers what this person does this time, by when, for what fee, and what the deliverable is. Our statement of work guide shows how to write one. Sign the master agreement before any work starts. It is the biggest piece of admin hygiene in this whole process.
If your subcontractor works in another country, add a governing-law clause and think about how you would enforce the contract if you ever had to.
The IP chain: where most people get caught
If your subcontractor doesn't assign their rights to you in writing, you can't pass full rights to your client. Your client paid for a deliverable, and your contract with them almost certainly assigns the IP to them. Your subcontractor made part of it. Unless the subcontractor agreement assigns the IP to you, the chain is broken.
US law makes this tighter than it sounds. The Copyright Office explains that a work made for hire by a non-employee needs an express written agreement and only applies to certain categories of work. Most design, strategy and software work falls outside them, so "work for hire" wording alone is not enough. The reliable fix is a present-tense assignment: the subcontractor assigns to you all rights in the deliverables as they are created.
If your subcontractor brings in their own helper, the chain has to continue. Without an assignment from the helper, they still own their contribution. Also decide portfolio rights up front. The default should be that the subcontractor needs your permission, and the client's, before showing the work.
Have your lawyer check the assignment wording. It is cheap insurance.
Tax: the 1099 and the cost you forgot
If you pay a US subcontractor for services, you generally file a Form 1099-NEC once payments pass the threshold. The IRS lists the threshold as $600, rising to $2,000 for payments made after December 31, 2025. Most real subcontracting relationships will cross either number.
Collect a Form W-9 before you pay, not after, so you have their tax ID on file. For a subcontractor outside the US you collect a W-8BEN instead, and 1099 reporting usually doesn't apply, though withholding rules can depend on the type of work. Your accountant can confirm which applies.
The cost people forget is supervision. Subcontracting adds work: writing the brief, reviewing the output, managing the schedule, handling payment and fixing mistakes. If you pay someone $40 an hour and keep charging $80, you may be earning less per real hour than before. Price the job by what the client gets and size your margin to cover your time. Our 13-week cash-flow forecast guide shows whether your rate after subcontractor costs is rising or falling.
Telling the client
Read your client contract first. Many contracts have a no-subcontracting or anti-assignment clause that needs the client's written consent. Some prohibit it outright, and some say nothing. The contract you signed governs.
If consent is required, ask in writing before you bring anyone in. Frame it as it is: a specialist or extra capacity working under your direction, with you still responsible. Most clients agree. A client who refuses is telling you what they thought they bought from you.
Quietly subcontracting against a clause that forbids it is the version that ends relationships. Discovery is usually accidental, like a different email signature or a name on a calendar invite.
When subcontracting becomes a team
When the same people work for you for years, full time, on your hours and tools, you have a team, not a set of contractors. That is the moment to restructure the arrangement so it is truly independent again, or to convert the worker to an employee with proper payroll in the place where they live. Calling someone a contractor while treating them like an employee is the expensive option.
How Delivvo keeps the work chain visible
Delivvo helps with the operations side of this. It won't draft your subcontractor agreement, and you shouldn't expect a template to replace a lawyer on that. What it does is keep the client-facing flow and the internal handoffs in one place, so the client sees one accountable business even when three people touched the work. Here is how a handed-off job runs.
The client's quote, contract and deposit invoice go out on one link, and the client signs by typing or drawing. A signing record stores the SHA-256 hash, IP address, device and an archived PDF.
If you run a team, set up people and boxes in the team workspace, with roles and a rule that nobody manages someone at or above their own level.
Create a task for the work you hand off, with an assignee, a written brief, a due date and files.
The assignee sees it in a "Waiting for me" list and uploads the result.
You review the work, then send the approved file to the client. The client sees only the approved file, under your business name, not the internal back and forth.
The client approves in the portal, pays through your own gateway, and Delivvo takes 0%.
The audit log records who did what, so a question six months later has an answer. Documents run in Arabic and English, and every invoice and contract carries a code that anyone can check at delivvo.io/verify.
Explore team structure and the team workspace. Subcontractors who aren't people in your workspace still need their own written agreement outside it.
FAQ
Can I subcontract client work without telling the client?
Only if your contract allows it. Many client contracts require written consent before you delegate, and some ban it. Read the clause and ask in writing if consent is required.
Do I need a 1099 for every subcontractor?
For US subcontractors you pay for services, generally yes once you pass the IRS threshold, which rises from $600 to $2,000 for payments made after December 31, 2025. Collect a W-9 first. For non-US subcontractors a W-8BEN usually applies instead.
Is a work-for-hire clause enough to own the subcontractor's work?
Often not. Work made for hire by a non-employee needs a written agreement and applies only to certain categories. Add a present-tense assignment of copyright, and have a lawyer review it.
How do I avoid misclassifying a subcontractor as an employee?
Pay by project, let them set their schedule and tools, let them work for other clients, and avoid long exclusive relationships. If the arrangement becomes permanent, restructure it or move to employment.
Should I mark up a subcontractor's cost?
Yes, price by what the client gets and cover your supervision time. Billing hourly rates stacked on each other tends to lose money on management.
Delivvo runs the whole client cycle for service businesses, from the first inquiry to the quote, contract, deposit, invoice and delivery, so handing work to other people never breaks the line the client sees. Clients pay you directly through your own gateway, and Delivvo takes 0%. Start free
