The difference between an independent contractor and a subcontractor is based on their working models. While both are the same peas in a pod in the construction industry, how they work, how they get paid, their working hours, etc., all differ. Over the years, there has been a slight shift in work relationships and roles in the construction industry, with businesses looking for ways to do more with limited resources. As a result, outsourcing certain jobs is considered a practical option instead of hiring new staff or workers for specialized tasks. Therefore, it is necessary to understand how the title of subcontractors and independent contractors can impact responsibilities within a project, especially when it comes to workers’ compensation and payroll.
This post highlights the generalized concept of independent contractors and subcontractors to help you understand the difference between these titles and how each can impact the business.
Who is an Independent Contractor?
As the name suggests, an independent contractor is someone who is not employed by any company and enters into an agreement with an individual or a business to complete a job. Independent contractors are considered sole proprietors or self-employed. Often they have a series of fields they are skilled and knowledgeable in and will contract out work if required. This means that independent contractors set their own rates and working schedules. As long as they have a contract with the client, they have work. Independent contractors boast a team of subcontractors, workers, laborers, and staff or even outsource specific jobs to cut the cost. These laborers, workers, and subcontractors are paid and controlled by the independent contractor.
An independent contractor agreement has the following aspects:
• An independent contractor is paid by the person or company who employed him
• An independent contractor is responsible for taking care of the project from start to finish
• An independent contractor is employed to build a home or any building for someone
• The contractor uses his/her resources to bring in a team of different professionals to perform various aspects of the labor to complete the construction project
• The contract created by the client/employer will be recorded in written form
• The contract will boast all the pertinent information about the project, such as the jobs that are to be performed and completed by the contractor, a specific amount of time in which the contractor has promised to finish the job, and the pay that the contractor will receive for the work performed
Who is a Subcontractor?
A subcontractor is like an independent contractor who is usually self-employed. But, instead of entering into a direct contract with the client to complete a project, subcontractors are introduced to the client via independent contractors. This means that the independent contractor pays a subcontractor. Also, the independent contractor hires subcontractors like carpenters, plumbers, etc., for a specific time period until the job is done. Nevertheless, a subcontractor is not considered an employee of the independent contractor and is responsible for paying their own taxes. The subcontractor may bring in his own team of workers for the job. If a subcontractor maintains a healthy relationship with the independent contractor, he may choose to use the subcontractor for all the projects he takes up. In most cases, the contractors maintain a record of subcontractors through services like Bridgit Solutions for hassle-free project undertaking and completion.
A subcontractor labors for a construction company or a contractor:
• Subcontractors are prominently used in home building and renovation projects
• Subcontracting is a practice where an individual or a company labors for another entity or a company under a contract
• Subcontractors are paid a portion of what the independent contractor receives for the project
• Subcontractors work closely with the general contractor as they guide them through the project details. This means they have little to zero contact with the client
• A subcontractor can be that person who accomplishes a part of an already existing contract by the original contractor
• The subcontractor finishes specific jobs for the general contractor, such as flooring, plumbing, landscaping, roofing, etc.
• A subcontractor is only employed once the independent contractor is employed by the client. A subcontractor does not contact the employer directly. It is the independent contractor who introduces the subcontractor to the project. For example, if you are hired by a company or individual to build a villa, you will outsource different tasks to different subcontractors. That is, you will hire an electrician to do the electrical work, a landscaper to do the landscaping labor, and a plumber to perform the plumbing services
• A subcontractor only has to answer the independent contractor
Independent Contractor vs. Subcontractor – who is liable?
When a company hires someone to work on a specific construction project, they are usually considered an independent contractor. They provide the labor, equipment, and services required to get the job done. They will also communicate with the company officials or the client to meet contract requirements and expectations.
When a new contract is signed, the client may be added to the independent contractor liability insurance policy. This protects the client in case a lawsuit is filed against them as a result of your work or actions. Therefore, the insurance provider of the independent contractor will cover the expenses and legal bills up to the insurance policy’s limits.
On the other hand, subcontractors are individuals or small companies that an independent contractor hires to complete the project. They report to the contractor and not the client. The contractor is responsible for managing their project duties, business actions, and payments, among other things. By hiring a subcontractor, independent contractors put themselves at greater risks. Therefore, they vigilantly consider the insurance implications.
Suppose you landed a project to build luxury villas for a property developer in four different locations. Because you cannot handle the project on your own because of its stature, you hire subcontractors with the objective of splitting the workload. Now, if the subcontractors fail to abide by the safety regulations prescribed by the state, legal actions will be taken against the client, and you will face legal trouble as well.
In short, independent contractors are held liable for any mishap that happens and not the subcontractor.
