What is a subcontractor? The truth unlocked

HomeBlogWhat is a subcontractor? The truth unlocked

Businesses are often at times too busy to handle a specific responsibility, role, or task within the business. When this situation arises, external companies or even individuals, are often assigned to perform that role. Deciding whether you should hire a subcontractor can be dependent on various factors, in terms of financial, managerial, and mainly due to what stage of the life cycle the business is in.

By definition, what is a subcontractor? 

Subcontractors are individuals who undertake contracts directly from contractors, doing work that a contractor cannot do, but is fully responsible for. Businesses usually use this to cover work that fall under the lines of building, catering, cleaning, gardening, marketing services, IT maintenance and support, security services, as well as recruitment. They are independent individuals, therefore work can be considered casual. For example:

  •  A law firm may hire an accounting firm to handle payrolls, balance books, and take care of other financial tasks within their business. 
  • A small to medium enterprise may hire a digital marketing agency to handle marketing related tasks such as social media, SEO’s, and launch marketing campaigns. 
  • An IT consulting company may hire a network security company to ensure their clients information is safe and protected from potential harm. 

What is a contractor? 

Contractors (sometimes called independent contractors), are individuals or companies that provide an agreed service towards a specific client for a set fee for a period of time, under a general contract agreement for services. They generally work themselves and are considered their own bosses, using their own processes, tools, and methods to complete the work. Given that they work for themselves, they are able to negotiate their own fees, and develop flexible working arrangements, and usually work with more than one client at a time. 

Contractors work together with subcontractors, as contractors usually employ subcontractors in order to complete a job. Subcontractors are technically other contractors, who instead of dealing with the primary client themselves, would usually deal directly with the contractors.

For instance, you may hire an events company (contractor) to handle the launch party of your new clothing line. Given this, events usually need security in the case of an emergency or an unwanted circumstance, therefore the events company works out a subcontract agreement with an independent security company (subcontractor) to handle this aspect of the event. 

What are the pros and cons of hiring subcontractors? 

As a contractor, hiring a subcontractor comes with a variety of advantages attached to it. These include: 

  • No need to pay taxes and benefits; 
  • Fewer legal obligations;
  • Can bring in specialised expertise to the company that you do not have among staff; and 
  • Increased productivity due to decreased pressure. 

However given these advantages, there are also disadvantages that come along as well, including: 

  • Payment per hour is often higher; 
  • Less commitment to you on their part, which has the potential to negatively affect the quality of their work; 
  • Does not have the same training or day-to-day interaction with your staff as your employees, so their style and methods may not usually blend in with yours; and 
  • Subcontracting may usually not cooperate well with employees and they may resent being paid less per hour for the same amount of work. 

As a subcontractor, what are the pros and cons? 

Working as a subcontractor, the variety of pro’s include: 

  • Being your own boss, dictating your own schedule; 
  • Make more money per hour; 
  • More variety, as well as experience working in different industries; and 
  • Fewer obligations towards the company that hires you.

Given these advantages of subcontracting, there are cons that come along too, including: 

  • Paying your own taxes and benefits, no paid vacation days or other employee benefits; 
  • More trouble getting the company to pay you, as many companies pay freelancers 30-60 days after the end of the month; 
  • Subcontracting means casual work, therefore income is not secure; and
  • The company usually has fewer obligations towards you.

Conclusion 

When deciding on who to hire as an independent contractor, it is important to weigh out the costs and benefits of doing so. It is also important to not identify and confuse the contractor and subcontractor as the same thing, as they are two totally different parties when completing a project for a business. If you need any assistance, including legal advice, our sister company Legal Kitz can help you! They offer a free 30 minute consultation for any queries and concerns you may have. Additionally, if you need a contractor agreement, our subscription plan includes every employment document you will ever require, from the low price of $14 per user, per month!