• Pay subcontractors on time and the correct amounts
• Precisely track job costs and keep good tax records
• Accurately bill customers for subcontractors' work, including adding markups

• Create service items for subcontracts
• Pay subcontractors
• Invoice customers for subcontracted work

Step 1: Create Service Items for Subcontractors
To track subcontractors' work, begin by creating service items for subcontractor services. For each subcontractor-related service item you will enter two prices: what you pay your subcontractors (your cost) and what you charge customers (the sales price).

You will then use the service items to pay your subcontractors (by writing a check or entering a bill) and to invoice customers. As you record transactions, QuickBooks tracks the income and expenses associated with subcontractor services.

Service Items for Subcontractors
When you use service items for subcontractors, QuickBooks records expenses and income for the work in separate accounts. You can use such items on both purchase forms and sales forms. You can also create reports that show the profitability of subcontracted work to your business. If you send 1099-MISC forms to subcontractors, assign the cost of the service item to an expense account that tracks payments to 1099 vendors.

1. From the Lists menu, choose Item list.
2. From the Item menu button, choose New.
3. In the Type field of the New Item window, choose Service.
   Note: You cannot change a service item to another item type.
4. Enter an item name or number. What you enter appears on the drop-down list of items when you are filling out a sales form or purchase order. Enter a name or number that will help you distinguish this item from all the others on the list.
5. If this item is a subitem of an existing service item, select the "Subitem of" checkbox and specify the parent item's name. (See "Creating subitems" in QuickBooks help.)
6. Select the "This service is performed by a subcontractor, owner, or partner" checkbox.
7. Fill in the Purchase Information fields:
   • Description on Purchase Transactions: What you enter here appears in the Description column of checks, bills, credit card charges, and purchase orders when you buy or order the item.
   • Cost: Enter the cost you expect to pay when you buy or order this item. You can change the cost at the time you buy or order the item.
   • Expense Account: Enter the appropriate expense account related to the service item (for example, Job Expenses: Subcontractors).
   • Preferred Vendor: (Optional) Choose or enter the name of your preferred vendor for this item.
8. Fill in the Sales Information fields:
   • Description on Sales Transactions: What you enter here appears in the Description column of the sales form when you sell the item. Your description may be up to three lines in length. If you need to, you can edit the description when you are filling out a sales form.
   • Sales Price: Enter the sales price you want to charge your customers for the item; typically a number greater than your purchase cost. If the sales price varies, leave this field blank. (You'll enter the price directly on the sales form.)
   • Tax Code: Enter the tax code for the item. When you make a taxable sale, QuickBooks uses the code to determine if it is taxable or not, but uses the sales tax item to calculate sales tax. This field does not appear if sales tax is not set up.
   • Income Account: Enter the appropriate income account.
9. Click Custom Fields to fill in any custom fields that apply to this item. (See "Why use custom fields?" in QuickBooks help.)
10. Record the item.

Step 2: Paying Subcontractors
When it's time to issue paychecks, subs will first send you an invoice listing their hours, expenses, and so on. You can then either directly write them a check, or enter a bill and then pay the subcontractor later when you're paying other bills.

1. Choose one of the following:
   • Write Checks from the Banking menu to write a check directly to the subcontractor.
   • Enter Bills from the Vendors menu to enter a bill from the subcontractor.
2. In the top part of the form, fill in the name of the subcontractor and the date.

1. In the detail area at the bottom of the form, click the Items tab.
2. In the Item column, enter the service item you set up for this type of subcontracted work.
3. In the Cost column, check the amount QuickBooks filled in. If the cost is incorrect for this job, change it.
4. In the Qty column, enter the appropriate quantity.
   • For example, if the subcontractor charges an hourly rate, you would enter the number of hours.
   • If the Qty column doesn't apply to this work, leave it blank.
5. In the Customer:Job column, enter the name of the job (or customer) for which the work was done.
   
   Entering the name here lets you invoice the customer for the work later. Also, you'll be able to create reports that show your costs and revenue from the work.
6. Save the bill or check.

Step 3: Invoicing Customers for Subcontracted Work
QuickBooks makes it easy to pass along subcontractor charges to customers. Follow this procedure if you have assigned a subcontracted expense to a particular job (or customer) and you are not invoicing the customer from an estimate:

1. As explained in Step 5 above, when you record the expense enter the job or customer name in the expense form's Customer:Job column.
2. From the Customers menu, choose Create Invoices.
3. Choose the name of the customer or job from the Customer:Job drop-down list:
   • If you have not set up jobs for the customer, choose the customer's name.
   • If you have set up one or more jobs for the customer, choose the job for which the work was done.
4. Click Time/Costs.
5. Click the Items tab.
   
   
   
   
   
   
6. In the Use column, click next to the service items that represent the subcontractor's work.
7. (Optional) If you want the costs you selected to be summarized in a single line item when you print the invoice, select the "Print selected time and costs as one invoice item" checkbox. When you view the invoice on your screen, you'll see a separate line for each cost; when you print the invoice, only the total for the entire group of costs appears.
   
   Do this only if you are certain you want the printed invoice to show only the total of the costs (and not a line by line listing of each cost). Once you record the invoice, you will not be able to print the costs separately.
8. Click OK to return to the invoice.
9. Make any needed changes or additions to the invoice.
   
   For example, if you have summarized the costs as one line item, you may want to change QuickBooks description of the line item so that it's appropriate for your invoice.
10. Save the invoice.