What is the difference between a contractor and a subcontractor

Contractors and subcontractors can significantly increase the worth of your company. If you’re thinking of hiring one, it’s crucial that you understand how they differ and how your responsibilities may differ for each.

For business owners, business managers and employers, it’s important to understand the key differences between contractors and subcontractors. Furthermore, you should be aware of how independent contractors operate.

First and foremost, as an employer you need to understand the key differences between a contractor and an employee. Contractors, subcontractors, and independent contractors are all classified as ‘contractors’. As such, contractors are not considered employees. A contractor should not be regarded as an employee of your company.

Contractors aren’t the same as workers. This means that unless you use a separate agreement, they are not legally bound by an employment contract. Therefore, having a legally binding Contractor Agreement for all contractors your business engages with is critical.

What is a contractor?

A contractor is a person or business who works directly with a client to execute a job, offer a service, or deliver materials. A contractor is not a client’s employee. Subcontractors are frequently hired by contractors for larger projects that require specialised expertise or extra hands on the job.

For example, you could engage a contractor to build a property from the ground up. The work may then be subcontracted to others by this contractor. Specialist trades, such as electricians and plumbers, fall into this subcontractor category.

Another example would be when you renovate your factory or business premises. You have secured the services of a construction company called BuildITNow. BuildITNow’s builders will complete the renovation work, but they may subcontract select specialist work, such as HVAC, to specialist trade professionals.

What is a subcontractor?

When you hire a contractor to finish a project, your contractor may hire a subcontractor. A subcontractor is officially another contractor who will interact directly with the contractor rather than with the primary client. A subcontractor can be an individual contractor (known as an ‘independent contractor’) or a company (known as a ‘general contractor’).

If you’re a contractor and you want to hire a subcontractor, make sure you understand your contractual obligations. This is important because a contractor may be held accountable to a client for any subcontractor’s substandard work.

So, if you’re going to hire a contractor, it’s crucial that you are aware of the obligations you are putting on them when it comes to hiring subcontractors.

For example, while completing the building work on your factory, BuildITNow engages a team to perform the electrical work. In this case, the people responsible for the electrical work are the subcontractors.

Contractors, subcontractors, and legally enforceable contracts

When engaging the services of a contractor or subcontractor, it is imperative that you set expectations of roles and responsibilities within a legally enforceable contract. You can construct an Individual Contractor Agreement or a Company Contractor Agreement online if you’re ready to hire a contractor. A Sub-Contractor Agreement is also available if you are a contractor considering hiring a subcontractor. More information about Individual Contractor Agreements and Company Contractor Agreements can be found on the Fair Work Ombudsman website.

For many small to medium business owners, engaging contractors and subcontractors is a key strategy for delivering jobs on time and to the right standard. While you focus on delivering the work, let us focus on making sure you’re covered with the right business insurance* policy. For SME businesses just like yours, we make business insurance a breeze through our simple to use online service model. Go online or give us a call on 1300 920 864 to see how we can help protect your business.