A construction site is a busy place filled with many people working together to get the job done. Contractors and subcontractors bring different yet equally important skills to each project. However, it may not always be obvious who is who at first glance.

This article covers the difference between contractors and subcontractors, including the tasks performed by each and why both may want to consider business insurance.

What is a contractor?

A contractor is an individual or business hired to complete a specific project or on a freelance basis. Contractors are hired directly by the client or business owner they will be working for.

Building contractors obtain construction contracts and deliver on them. They typically have some construction experience, often within a specific trade (carpentry, plumbing, electrical, etc.). Though a contractor typically has some trade experience, they may be hired to oversee an entire project, including areas they do not specialize in.

You will need a general contractor or specialized trade license in many states to be hired as a contractor. Licensing requirements vary from state to state (and sometimes within local jurisdictions). Always check the licensing laws in your area before you begin accepting clients or contracts to ensure you are legally able to work as a contractor.

What do contractors do?

Generally speaking, a contractor’s job is to:

• Secure clients and project contracts
• Deliver finished projects

Contractors typically work under a contractual agreement to deliver services, labor, or materials for a project. To secure these job contracts, they must first establish a strong professional reputation in the construction industry and advertise their services.

A building contractor may work on smaller projects themselves but often delegate work to others on larger, more complex jobs.

What is a subcontractor?

A subcontractor is an individual or business hired to carry out work for a contractor. Subcontractors are hired by the contractor and rarely interact with the main client. They are liable to the contractor who hired them.

On a construction site, subcontractors are typically the ones to do the physical work on a project. You will typically need a specialized trade license to be hired as a subcontractor. Licensing is one way for the contractor hiring you to ensure you have the skills necessary to do the job and that you understand safety and best practices within your trade.

What are a subcontractor’s duties?

The duties of a subcontractor will vary, depending on exactly what they’ve been hired to do. Subcontractors are brought on to a project for their specific knowledge or skill. Therefore, the duties they carry out will be related to their individual expertise.

For example, a general contractor may hire separate subcontractors to work on the project’s plumbing, electrical system, and carpentry elements.

Can a subcontractor hire another subcontractor?

Managing risk is part of a general contractor’s job. Whenever they bring on a new subcontractor, they are also taking on risk. For this reason, the agreement you sign with a contractor may prohibit certain activities, including barring subcontractors from hiring their own subcontractors.

When subcontractors hire other subcontractors, it can become harder for the general contractor to control the project. Delays and other problems could result, including a lawsuit that affects everyone up and down the chain of command.

If you are a subcontractor, check your contract before hiring another subcontractor. Even if it is allowed, it may not be the best course of action. You might want to speak with the contractor who hired you or the project manager to work out issues regarding potential delays and lack of skill or expertise. You might find that further subcontracting is not necessary or that the general contractor prefers to hire additional subcontractors themselves.

Subcontractor vs Contractor recap

There are key differences between contractors and subcontractors. Here’s a quick breakdown to sum up what we’ve discussed.

Contractor insurance for your small business

Both contractors and subcontractors consider different types of business insurance to help protect themselves while they work. The policies you need will depend on the work you do and how your business is structured.

Contractor insurance

As a general contractor, you may need or want policies such as:

• General Liability – This policy may be required to obtain a contractor license, lease commercial workspaces, or be hired by a client.
• Professional Liability – Coverage may be considered to cover mistakes in your or a subcontractor’s work, plus missed deadlines and other project issues.
• Business Owner’s Policy – These insurance packages can help you prepare for business interruptions, equipment breakdowns, and other risks your business may face.
• Workers’ Compensation – This coverage may be required by law if you have one or more employees (though subcontractors are often not considered employees for these circumstances).

Subcontractor insurance

As a subcontractor, you may face fewer on-the-job risks than a general contractor. General Liability insurance may be necessary to get and keep your trade license, but you may not be required to have Workers’ Compensation if you are the only employee at your business.

However, if you frequently bounce between the roles of contractor and subcontractor on different projects, it might make sense to maintain coverage between projects to ensure you are always covered.

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