Subcontractor vs contractor.
What’s the difference?
While the two terms are often used interchangeably, there are actually some significant differences between the two.
Differences that could impact whether or not your business is protected from risk.
Here, we will focus on what differentiates subcontractors and contractors and some real-life examples of when to use each term.
What Is an Independent Contractor?
Firstly, let’s identify what an independent contractor is.
In simple terms, an independent contractor is any self-employed person who offers good and services as needed, rather than as an employed member of staff.
Contractors work to a specific written or verbal contract, which outlines the exact requirements of the independent contractor, and the remuneration for their work.
While you might think independent contractors only operate on large contracts, that is not the case. If you employed your neighbor’s child to wash your car for $10, that would class as independent contracted work.
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What Is a Subcontractor?
The term subcontractor is slightly more complex, but it is a form of contract commonly used on large jobs, where a general contractor delegates some of the work to other subcontractors.
They are employed by the contractor, not the person who hired the contractor, and their working relationship to the general contractor is similar to that of the independent contractor and the company employing them.
Subcontractors are hired and paid directly from independent contractors for certain aspects of large projects.
In some instances, the employer of the independent contractor may not ever meet the subcontracted workers, and has no legal obligations towards paying or insuring them.
The Key Differences Between Independent Contractors and Subcontractors
As you can see, there are some significant differences between independent contractors and subcontractors.
However, at first glance, it might be hard to spot the difference on certain projects especially in industries such as IT or web developers.
While both a subcontractor and contractor complete a specific project for an established fee, a subcontractor is not in any form of contractual agreement with the employer.
Simply put, if someone is directly employed by a company, they are technically an independent contractor. If a worker is hired by an independent contractor to help with specific tasks of a project, they are a subcontractor.
When a small business owner would hire a contractor
Let’s turn this into a real-life example. Perhaps you run a small bakery, and you want to give your website a complete overhaul. You need completely new copy, a new design, and plenty of SEO support to ensure your website reaches the top of the local rankings.
As a small business, your budget is still tight, and you don’t want to employ a full-time member of staff, as you aren’t sure what else they will work on after this project is completed.
The rest of your marketing strategy and budget has already been allocated for the year as part of your marketing plan, and you just need a specialist to come in and complete this one-off job.
In this instance, you may opt to hire a digital marketing contractor. As part of the contract, it is their job to supply these requirements in return for a set fee.
As part of the contract, you can set a deadline, specific milestones to reach, and any other individual requirements.
As a result, you can spend more time focusing on what you love – baking delicious treats – while your website gets taken care of.
When a contractor would hire subcontractors
Now, let’s look at when a contractor would hire subcontractors. Using the same example, let’s focus on the perspective of the person who has gotten hired to work on the bakery website.
Chances are, very few people can claim to be experts in website design, SEO, and copy. These are all niche jobs that require specific expertise.
But having a copywriter and SEO specialist on your employee payroll full-time can be very expensive.
However, in this instance, the independent contractor has the work and agreement in place, so now they can confidently subcontract out aspects of the job, knowing they will still make a profit.
The next step is for the contractor to source specialists for each aspect of the job, while continuing to be go-to between the project and the bakery.
Each specialist will get paid for their role in the project at a rate that the independent contractor decides.
A win-win!
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Frequently Asked Questions About Contractors and Subcontractors
What makes you a subcontractor?
You are classed as a subcontractor if you are employed by an independent contractor for a job rather than working directly with a business or employer.
What is the difference between an independent contractor and a subcontractor?
Simply put, if someone is directly employed by a company, they are technically an independent contractor. If a worker is hired by an independent contractor to help with specific tasks of a project, they are a subcontractor.
Do I need workers' compensation insurance as a subcontractor?
While there is no legal requirement for subcontractors or independent contractors to get compensation insurance, terms may vary depending on the project.
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Ready to Build Your Business?
Now you know the difference between subcontractors and contractors, and you can confidently hire an independent contractor as and when you need.
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