The difference between a contractor and a subcontractor

A contractor is a company or person under a formal contract to do a specific job, supplying labour and materials and providing and overseeing staff if needed. A good example is a building contractor. A subcontractor is a secondary contractor hired by the main contractor to do all or part of the work. That is, to pass on work to a second person or company under the terms of a subcontract. For example, a building contractor can hire a subcontractor to handle the electrical wiring of a building.

Contractors and subcontractors are individuals or businesses that carry out specific tasks and projects for those who hire them. Small businesses often work with both to scale operations. You need to know the difference between a contractor and a subcontractor so you can enter into any such working relationship with clarity and the right processes at hand.

Understanding the difference between a contractor and a subcontractor becomes clear in specific industries and use cases. You may be familiar with some examples, such as:

• Construction: A general contractor is hired by a new homeowner who wants to remodel their house. The contractor hires subcontractors who accomplish plumbing, painting, carpentry, and electrical projects, respectively. 
• Marketing: A brand agency is hired by a small business to refresh its brand. The agency, being contracted for the full-scale project, hires subcontractors to complete website redesign, handle photography needs, and build out a newsletter. 
• Consulting: An individual consultant is hired by a major corporation to identify areas of innovation for its future product lines. The contracted consultant hires a subcontractor for research and another subcontractor for data visualization. 

Contractors and subcontractors are not limited to certain industries or tasks. More pointedly, subcontractors can leap across industries based on skills, such as a web designer who takes on a book design or a carpenter who engages with an events contractor.

As a business owner, one will predominantly work with contractors when they need to outsource specific projects. A contractor will then decide whether subcontractors are needed to complete the contractual agreement between them and the client. Several factors go into a decision to hire, including the pay rate, a subcontractor’s budget, and the timeline. The contractor may decide it’s not a big-enough task or a sufficient budget to make a subcontractor worth the resources.

Difference between a contractor and a subcontractor exists in different form, yet the 2 main distinction comes down to two features: the client they are working for and the scope of work they’re responsible for completing.

We’ve however been able to come up with 5 differences as presented in the table below.

Difference between a contractor and a subcontractor 

Hiring

The art of hiring of perhaps the first major determinant of the difference between a contractor and a subcontractor. Often, a client has found the contractor through a business referral or networking opportunity. The client hires the contractor because of positive reviews, strong project management skills, and an understanding of the specific task at hand. It’s in the best interest of a contractor to have a wide network of business clients that could lead to work.

Subcontractors network with contractors that work on projects that overlap with their specific skill sets. An example of this would be an iron filter building a comprehensive network of contractors. A contractor hires the subcontractor based on a need for a targeted skill set.

Reporting Structure

Contractors and subcontractors work simultaneously to complete a specific project or task, yet the reporting structure for a project differs significantly between the two. This is one of the major difference between a contractor and a subcontractor.

A contractor reports directly to the client with no middleman separating the two. The contractor maintains a good relationship with the client through timely communication and submission of work. Reporting to the client could mean sharing updates with a business owner, a team of individuals, or an assistant.

A subcontractor has little to no direct communication with the client. Instead, a subcontractor works and reports directly to the contractor. Subcontractors building a solid reputation will engage in frequent communication with contractors, set expectations around deliverables, and stay within budget and time frame.

Payment

An easy way to recognize the difference between a contractor and a subcontractor is by answering one simple question: Who is paying the worker? A contractor is not only hired but paid by the client. This person is hired to provide a service outlined in a contractual agreement that specifies the pay rate. Some contractors may get paid a lump sum at the start and finish of a project, monthly, or all upon completion. 

A subcontractor is paid by the contractor on the terms stated in writing. The individual often has less negotiating room for how much they get paid, having to align with the contractor’s budget. This differs between contractor and client because the client doesn’t set the subcontractor’s rates.

Skills

The difference between a contractor and a subcontractor could be related to their skill set. Contractors and subcontractors may have the same, or complementary, skill sets. For example, a general contractor in construction has the same carpentry know-how that a carpenter subcontractor would.   

However, this is not a two-way street in all aspects. A contractor needs to offer a suite of skills, including project management, leadership capabilities, and the ability to see the larger picture. This individual needs to be able to manage a team.

A subcontractor is known for specific skills, understanding the inside and out of a particular task. This individual would be hired to complete a part of a project but wouldn’t manage the full-scale initiative. 

Insurance Needs

The difference between a contractor and a subcontractor sometimes comes in the degree of responsibility. Contractors in specific should take out surety bonds to guarantee the completion of a project. Surety bonds make a contractor more appealing to clients as they act as the legal note ensuring fulfilment. Subcontractors don’t need these bonds, as the contractor would cover the full scope of the project.

You’ll want to find a contractor who offers a surety bond at the start of the project. If for any reason the work isn’t completed, the company that issued the bond will fulfil the contract through completion or compensation.

Documentation

Depending on state laws and type of work, business registration and some sort of registration and documentation may be a necessity for contractors but not subcontractors.

Conclusion

Understanding the difference between a contractor and a subcontractor is important for people moving into contracting so they understand with clarity to flow of communication and chain of command and loyalty.

Comparing contractors and subcontractors comes down to the reporting structure. A contractor works directly with the client and is responsible for timely overall project completion. A subcontractor works with the contractor on a specific project basis and must perform well to continue getting work.

We hope we’ve been able to show you some difference between a contractor and a subcontractor.

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