[luckystrike]

Patrick McKenzie (patio11) wrote about this topic in one of his newsletters. It is a must read.

https://training.kalzumeus.com/newsletters/archive/consultin... (You can jump to the section "Scaling A Consulting Business")

He also did a podcast with Brennan Dunn on the same topic:

http://www.kalzumeus.com/2012/10/10/kalzumeus-podcast-3-grow...

  Would the subcontractor want to know how much he's getting paid vs the contract, 
  would this affect his incentive?

Finding good & reliable subcontractors is hard. When you do find such a person, my suggestion is to be as transparent as possible with them. The most probable reason why this person (who we think is good) is subcontracting is either they can't get high value engagements on their own, or don't like the rigmarole of finding good clients. If that is the case, they should understand the markup being charged by you.

In the end, if it is a win-win situation for both, they would understand and be happy with it. Of course, the assumption here is that they are reasonable but that you'll have to judge after working with them for a while. I write this as a person who'd prefer working as subcontractor at this point of time.

[wikwocket]

Those links are really an excellent place to start. Patrick (patio11) and Thomas Ptacek (tptacek) have also talked extensively about this in HN comments, and as far as I know are open to questions by email.

Two things that I can emphasize off the top of my head are:

1) It is easier to sell features, or weeks of effort, as opposed to billable hours. Billing by the hour is asking for nitpicky accounting. Bill by the week, or by the project (if you are confident about scope and effort) and you can simply exchange money for delivered value.

2) If you "hire" someone as a subcontractor, they are effectively trading some of their earning potential for paycheck security and not having to deal with rainmaking. This is similar to the deal a day job offers. Hopefully they understand this, but you should definitely understand this. You will be absorbing the bulk of the risk and responsibility. Relative pay should reflect this.

[vtanase]

I have to agree here, transparency is key, trust is a very important part of human relations. You build this by starting with a couple of tasks where you pay the subcontractors hourly rate, to feel each other out, but you need to make sure you are clear about what you want after that: project based work, help on various tasks with an hourly pay model etc.

Since good subcontractors are hard to find you should not treat them as interchangeable pieces and try to get the lowest rate possible. Being transparent will go a long way towards building a professional relationship that will allow you to collaborate long term on multiple projects.

On this note, I would be interested in hearing what you are looking for as I would enjoy doing some subcontracting considering I do not really enjoy the whole client dance. You can find my e-mail in my profile.