Sydney-based lawyer. Formerly Legal Intern at Lawpath.
Contractors and subcontractors can add a lot of value to your business. If you plan on hiring one, it’s important to know how they’re different and how your obligations will vary.
Whether you’re part of an organisation or plan to hire a third party, it’s important to understand the key differences between contractors and subcontractors. Further to this, you should also understand how independent contractors work.
Primarily, it is important to understand the difference between a contractor and an employee. Contractors, subcontractors, and independent contractors all fall under the category of a ‘contractor’ and are therefore not ‘employed’. If you hire a contractor, they will not be considered an employee of your business.
Contractors are not employees. This means they are not legally bound under an employment contract unless you use a separate agreement. This is why it is important to have a legally binding Contractor Agreement.
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Who is a Contractor?
A contractor is an individual or company hired to perform specific tasks or provide services under a contract. Contractors operate independently, often specialising in fields like construction, consulting, or IT, and are not considered employees. Their responsibilities and compensation are defined in their contractor agreement.
Who is a Subcontractor?
A sub-contractor is a person or business hired by a contractor to perform part of the work that the contractor has agreed to complete. Sub-contractors specialise in specific tasks or trades and work under the primary contractor rather than directly for the client. Their responsibilities and compensation are defined in a different agreement, known as the sub-contractor agreement .
If you are a contractor planning on hiring a subcontractor, you need to be sure of your contractual obligations. This is because a contractor may be liable to a client for any poor work that the subcontractor performs.
If you are planning on hiring a contractor, it is equally important to understand the obligations that you place upon them when it comes to them hiring subcontractors. Consider our guide How to Hire a Contractor for some key pros and cons when it comes to hiring contractors.
Example
Retail Building are in the midst of adding the second story onto your shop, but do not have the expertise to do all the light fittings. They delegate the work to a company ‘Luminous Lights’ to install them. Luminous Lights are subcontractors for this job.
Conclusion
It is important to ensure you and your contractor’s expectations are set out in writing. This should take the form of a legally binding agreement. If you’re ready to hire a contractor, you can create an Individual Contractor Agreement or a Company Contractor Agreement online. If you are a contractor considering hiring a subcontractor, we also provide a Sub-Contractor Agreement.
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