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Understanding the differences between a contractor vs subcontractor is essential for managing projects, legal risks, and workflows. This guide breaks down how each role functions, what their responsibilities are, and when to use one over the other.
Contractor vs Subcontractor: A Quick Side-by-Side Comparison
Although both are independent professionals, contractors and subcontractors serve distinct roles. From client relationships to payment structures, each operates under different expectations.
Here’s how they compare in responsibilities, working relationships, and legal obligations.
| Category | Contractor | Subcontractor |
|---|---|---|
| Client Relationship | Works directly with the client and is contractually accountable to them. | Works under a contractor and is accountable only to them—not the client. |
| Role in Projects | Manages full projects, coordinates tasks, and may hire subcontractors. | Completes specialized portions of a project assigned by a contractor. |
| Scope of Work | Broader responsibilities, may oversee entire projects across multiple tasks. | Narrower focus, often provides niche expertise or technical skills. |
| Who Hires Them | Hired directly by clients or businesses. | Hired by contractors, not directly by clients. |
| Legal Responsibility | Legally responsible for project quality, timelines, and deliverables. | Responsible for the quality and timely delivery of their assigned work to the contractor. |
| Tax Status | Self-employed; responsible for their own taxes (e.g., 1099 in the U.S.). | Self-employed; responsible for their own taxes (e.g., 1099 in the U.S.). |
| Insurance Requirements | Must carry own insurance (liability, workers’ comp, etc.). | Must carry own insurance; contractor may share liability at job sites. |
| Payment Structure | Paid at project completion or based on milestones outlined in contract. | Paid after task completion, inspection, or at intervals for long-term work. |
What is a Contractor?
When we’re talking about hiring workers, it’s very important that they’re correctly classified. Tax administrations like the IRS strictly define the variances between different categories of workers to impose their tax obligations and those of their employers.
Therefore, to understand the differences between contractors and subcontractors, we should first define each of these roles carefully.
Definition
According to the IRS, contractors control their working hours and days and the methods they use to perform their work. They also normally own the tools they use to produce their work while employees use tools and schedules provided by their employers.
While we often use the word contractor synonymously with “building contractor”, this definition is much broader than that. Contractors can include professionals like doctors, dentists, lawyers, and accountants if they own their own practices. However, people in almost any line of work can be contractors including carpenters, electricians, writers, graphic designers, musicians, and many more.
Role in Project Management
Contractors can play many key roles in project management. Using the example of a marketing campaign for a small business as an example, let’s suppose a new local bakery wants to market itself and its delicious products. Since the business owners have no experience with marketing, they could choose to hire an in-house marketing employee, but are much more likely to engage a marketing consultant. If this person works independently, they are a contractor and will make a proposal for marketing and then sign a contract with the bakery to provide a specific set of services.
The services they provide for the entire marketing campaign might include performing market research, organizing special events, advertising, and coordinating social media marketing. This entire campaign is a project and while the bakery owners might help with the timeline, the marketing consultant is responsible for keeping the different parts of the project on-time and coordinated. They’ll also estimate costs for the campaign, procure materials, determine any regulatory requirements, and maintain the quality of the marketing effort. These responsibilities are common across all kinds of contracting work.
Responsibilities and Legal Obligations
The contractor offers a price and a timeline to the client for deliverable products or services. Their responsibilities include following this timeline and providing deliverables of the quality promised to the client. They’re also obligated to comply with all laws governing their work. Since contractors control the time and methods of their own work, there are no employment laws dictating conditions such as their regular hours, overtime, and breaks. However, they’re required to follow noise, safety, and other regulations when they work.
Contractors are not considered employees and therefore the people or businesses who hire them should not deduct social security contributions or withhold income taxes from their pay. Contractors are responsible for declaring their income (1099 forms with the IRS) and making their own insurance and pension contributions.
What is a Subcontractor?
We can tell by the name that in order of organization, a subcontractor is situated under the control of a contractor. However, it’s important to define what a subcontractor is both for organizational and tax reasons.
Definition
A subcontractor is, first and foremost, still a type of contractor and not an employee. Again, the subcontractor controls their own hours and means of production of their work, whereas an employee has these things dictated by their employer. Subcontractors are responsible for reporting their own income and paying self-employment taxes.
However, subcontractors are different from contractors in that they don’t deal directly with clients. Instead, they provide services to the contractor who has taken on a project. If we return to our bakery example, the marketing consultant who enters into a contract with the bakery owners for a campaign may need to hire several subcontractors to do various parts of the job. If they do, they assign work to the subcontractors who submit it to them and not the client.
Role in Specialized Tasks
While contractors can perform specific tasks, they can also take on large, generalized projects that require many specialists. These specialists are typically subcontractors who provide services to many different contractors. If our management consultant needs advertising materials for the bakery, they might subcontract the work to a graphic designer. They might hire an event coordinator for a special event at the bakery or a researcher to look into the local market – both would be subcontractors working directly for the contractor.
Responsibilities and Legal Obligations
Subcontractors are normally hired to provide specific services for contractors and they’re responsible for these services being performed or deliverables submitted on time. They also need to control the quality of their own work so that it’s up to the standard promised by the contractor. Even though the subcontractor is producing work that will be given to the client, they have no direct responsibility to the client but only to the contractor who hired them.
For example, the advertisements made by our graphic designer would be submitted to the marketing consultant who would approve them. If the marketing consultant then shows these to the client who doesn’t like them, the consultant (contractor) would be responsible for hiring the designer to redo them or possibly even hiring another designer.
Legally, subcontractors are responsible for following workplace health and safety regulations. Contractors bringing them into job sites share in this responsibility, however, and should ensure that they’re made aware of all dangers and regulations. Like contractors, subcontractors are self-employed and responsible for reporting and paying their own income taxes as well as contributions to insurance and pension programs.
Contractor vs. Subcontractor: Key Differences
In the eyes of the tax law of most countries around the world, a subcontractor is a type of contractor. These are people who are self-employed, make their own work schedules, risk profit and loss, and have significant investments in the tools of their trades.
In practice, however, these two groups are treated and behave differently in the world of work. The key differences between them include the following:
Scope of Work
Contractors typically do a lot more work in a broader range of areas than subcontractors.
A construction contractor might agree to build an entire building but would likely hire specific subcontractors to do the electrical wiring, concrete work, and roofing. The contractor has to manage the schedules and coordination of these different subcontractors to ensure they can work effectively.
They also need to advertise their services or actively search for clients, while subcontractors advertise their specific skills and services directly to contractors.
Hierarchical Relationship
Contractors are hired directly by an individual or a business concern to provide specific products or services. They normally work closely with the client to understand their needs, including the specifics on deliverables, the quality they require, and the date when the work should be finished.
These parties enter into a contract agreement and that makes the contractor responsible for completing the project. The contractor will then hire and manage one or multiple subcontractors to make sure the work gets done. They normally arrange a schedule for different parts of the work so that each subcontractor has the ability, time, and space to finish their part of it in the right order.
Subcontractors are therefore answerable to the contractor, and the contractor answers to the client.
Legal and Contractual Responsibilities
In the relationship we just discussed, there are two types of contracts for work.
The first contract is between the client and the contractor. It will define the work that will be performed, usually the starting and ending dates of this work, and the amount the contractor will receive as compensation when the work is satisfactorily completed. It may also include a guarantee of the work for a certain period.
The other type of contract is between the contractor and a subcontractor. The details of this kind of contract will be similar – it will include the specific job the subcontractor will do, when it will be started and finished, and how much they’ll be paid. However, the subcontractor will guarantee their work to the contractor and not to the client. If there is a problem in the future, the client cannot hold the subcontractor responsible but must follow up with the contractor only.
When to Hire a Contractor
If you have a project or a business that you don’t have the time, resources, or skills to complete all on your own, you may want to hire a contractor to help you. Here are some of the ways in which hiring a contractor is beneficial.
Managing Full Projects
Rather than taking on only specific tasks, contractors often manage full projects from start to finish.
This can include completely building a new building or managing an entire marketing campaign as well as numerous other examples from different industries. Contractors may have many skills and do much of the work themselves, only subbing out some specific jobs.
On the other hand, they may not do any of the actual work themselves, instead taking on the role of a manager and quality inspector to ensure that everything is done correctly.
Client and Contractor Relationship
Clients and contractors enter into contracts together. If you hire a contractor, you can directly state the details of the work you want done, your standards of quality, and your time limits. The contractor will have to work within these conditions and manage any subcontractors they use to do the same.
Legal Accountability
Because you enter into a contract directly with a contractor, they’re accountable for their half of the bargain. If the work they perform is subpar or delivered late, they’re responsible and may have to redo their work or compensate you for any lost time.
When to Hire a Subcontractor
Technically, only a contractor can hire a subcontractor – if a business hires an independent person to provide it with services, they’re hiring a contractor.
If you’re a contractor, however, and want to make use of someone else’s specific skills to do something you can’t do yourself or don’t have time for, you need a subcontractor.
Specialized Expertise
Most subcontractors work in very restricted areas and have special skills that make them valuable. They generally leverage these skills to make money while contractors use multiple skills for different parts of a project.
Relationship Between Contractor and Subcontractor
Contractor enters into contracts for parts of their projects with subcontractors. They generally specify their work and set their due dates, but they don’t control exactly when and how they perform their work. If subcontractors make mistakes or produce poor work, they’re directly answerable to the contractor who hired them.
Limited Scope of Work
If you need only a specific job done like making a single graphic advertisement or pouring a slab of concrete, you’ll use a subcontractor for that limited task and likely that alone.
Legal and Compliance Considerations
As with work of any kind, it’s critical that every party follows the law and complies with tax and labor regulations correctly. Some considerations to keep in mind include:
Contracts and Agreements
Contracts should be written and clearly detailed to protect all parties from misunderstandings.
Contractors may have to make specialized contractors for each project they work on while subcontractors typically perform the same services repeatedly and normally work from a standard contract format.
For large, valuable contracts, both clients and contractors may want to work with legal counsel to ensure the contracts protect their interests.
Liability and Insurance
Both subcontractors and contractors are required to supply their own insurance. This can include general liability insurance for third-party damages, errors and omissions insurance, and workers’ compensation insurance.
Some contractors may also take out surety bonds that protect clients if a job is unfinished.
Tax and Employment Law
Contractors and subcontractors are both considered self-employed workers. They’re required to report their income themselves and pay taxes on it. The people and businesses who employ them should also report the money they paid to contractors and subcontractors using 1099 forms. Care should also be taken to ensure these workers are properly classified and are not, in fact, employees who should be paid benefits.
Contractor and Subcontractor Payment Structures
Contractors and subcontractors are not paid regularly like employees are. Instead, they usually receive their pay when their work is done.
| Type | Payment Structure |
|---|---|
| Subcontractors | Paid after completion and inspection. (short-term work) May be paid weekly or after specific progress milestones. (long-term work) |
| Contractors | Typically paid after full project completion or at agreed milestones. Milestone payments can be included in the contract for staged work. |
Contractors and Subcontractors
Rather than simply being different categories of workers, contractors and subcontractors work together. Contractors typically find clients, assess their needs, and manage projects for them. Subcontractors perform specific tasks to help contractors. Through this complex relationship, they get jobs done on their own schedules and through the methods they think are best.
Author: Charlotte Evans
Charlotte is an Human Resources Information Systems and Martech expect, Charlotte has worked for major brands in the industry including FactorialHR and Tooltester. Originally from Manchester, UK, with a Bachelor's degree from the Manchester Metropolitan University, Charlotte currently lives in Barcelona, Spain.