Contractor vs. Subcontractor: Understanding the Difference

Construction projects require a team of pros who work together for a common goal: completing a building or structure on time and on budget. Contractors are the project manager of any construction site. They coordinate the day-to-day operations by hiring workers, buying materials, and leading the actual construction tasks. 

Depending on the size of the project, contractors may have the talent to complete a job with their in-house team of tradespeople. Larger projects or specialized tasks that fall outside a contractor's in-house team sometimes call for a subcontractor. Subcontractors are specialists in specific types of construction, including plumbing, wiring, masonry, and many others. 

Subcontractors are often self-employed or small business owners who specialize in a particular niche in the construction industry. Both construction pros and homeowners need to understand the difference between contractors and subcontractors for different reasons. 

Those entering the construction field will need to understand the difference to find the best career path for them: contractor versus subcontractor. It's also helpful for homeowners to know subcontractor roles to understand the construction process and monitor job progress.

Difference Between a Contractor and Subcontractor

The difference between a contractor and a subcontractor comes down to construction project tasks and who does them. Project owners (typically the contractor) assemble a team for the job. They may need specialized tradespeople like subcontractors to work on behalf of the project owner. 

There's also a difference between a subcontractor and an independent contractor. The distinction between them is the employment relationship. A subcontractor provides the original contractor with specialized services. The project manager hires independent contractors for a job or a series of jobs. They're still contractors, but work as an independent entity.

What a Contractor Does

According to the U.S. Bureau of Labor Statistics (BLS): "Construction managers [contractors] plan, coordinate, budget, and supervise construction projects from start to finish." 

They typically work with architects, civil engineers, and trades workers to oversee the construction phase of a project.

As the project manager of a construction job, contractors have ultimate responsibility in all phases of the project, including:

• Preparing cost estimates, budgets, and work timetables

• Collaborating with architects, engineers, and other construction specialists

• Selection of subcontractors and scheduling their responsibilities

• Communicating with the building owner and other stakeholders

• Ensuring the project complies with legal requirements like building and safety codes

Contractors can range in size from a large corporation with hundreds of employees to a one-person operation. The size of a contractor company usually determines the scope of projects they'll take on. 

Some large projects, like housing developments or commercial properties, may employ multiple contractors with one maintaining oversight over the entire project.

How to Best Work With a Contractor

Contractors are the project managers of any construction job. They are the ultimate authority and have the overarching responsibility for a project's success. 

Maintaining a cordial yet professional relationship with contractors can help subcontractors work together toward a common goal, and ultimately lead to more work through referrals and positive reviews.

Here’s how subcontractors can successfully work with contractors:

Develop a Communication Plan

Working with a contractor can be a hands-on affair with constant communication or more hands-off with only the occasional check-in. It depends on what the contractor prefers. If it’s not clear, subcontractors should ask the contractor when and how often they’d like status updates.

There should also be an agreement on communication with the homeowner. Typically, the contractor speaks directly with the homeowner as one single point of contact. Singular channels of communication help avoid errors and misunderstandings. But every job is different and subcontractors may take on this responsibility if the contractor prefers.

Get Everything in Writing

Contracts and a detailed paper trail protect everyone involved in a construction project, including the homeowner, contractor, and even subcontractors or other vendors. 

Contract considerations for subcontractors include:

• A detailed description of the work and the costs for materials

• A payment schedule for the beginning, middle, and end of the project

• Any applicable guarantees

• Liability and insurance information

Get Proper Licensing

Subcontractors are ultimately responsible for their work and the safety of any employees they have. Depending on the state or locality, subs need the proper contractor license, business registration, and liability insurance. They act on behalf of the contractor and represent them when dealing with the project owner or vendors, so licensing is essential.

What a Subcontractor Does

Subcontractors work on a contractual basis and provide a niche set of skills. Construction subcontractors are skilled tradespeople who work on new buildings, additions, alterations, maintenance, and repairs. They often have specialized education and training for their craft. 

The main categories of subcontractors include:

• Plumbing, heating, and air conditioning

• Painting and paper hanging

• Electrical work

• Masonry, stonework, tile setting, and plastering

• Carpentry and floor work

• Roofing, siding, and sheet metal work

• Concrete work

• Special trade contractors (including glass workers, excavators, demolition experts)

How to Best Work With a Subcontractor

Subcontractors have the specialized skill to add critical components to any building. Their expertise makes projects move efficiently when needed. Contractors should look for experienced subs with a history of quality work and a stellar reputation.  

Here’s how contractors can successfully work with subcontractors:

Create a Plan

Contractors and homeowners alike need a detailed statement of work (SOW) to document the project tasks, schedules, deadlines, and other administrative functions expected during the job. SOWs also include financial reimbursement info and other regulations and guidelines from the project owner.

SOWs are vital to the contractor/subcontractor partnership. Having a reference to provide clear and concise goals and expectations maintains efficiency and reduces the chance of costly mistakes. 

Get Contracts and Liability Insurance

In addition to an SOW, contractors and subcontractors should have a written agreement between them. Contracts protect both groups from default and liability issues. 

Subcontractors should have their own general liability insurance, workers' compensation, insurance, and a subcontractor license. A contractor who hires an uninsured or unlicensed subcontractor may be liable for any injuries or lawsuits.

Tax Considerations for Subcontractors

The contractor usually pays the subcontractor. All subcontractors must file and pay taxes, including federal, state, and local income and self-employment taxes. The Internal Revenue Service (IRS) treats independent contractors as self-employed individuals. They're subject to different sets of tax payments and filing rules than employees.

Subcontractors must file IRS Form 1099-MISC if they earn over $600 in a year. Any independent contractor expected to owe $1,000 or more in taxes annually should consider making estimated quarterly tax payments. These payments cover self-employment taxes and income tax liabilities for the year.

How to Find Contractors or Subcontractors to Work With

The success of any construction project ultimately comes down to the quality of work. Hiring skilled and experienced subcontractors is a vital part of a contractor's responsibilities. But how can contractors find a subcontractor to work with (and how can homeowners find contractors)? 

Inquire Locally

One of the easiest methods to find a contractor or subcontractor is to ask friends or family members. There may be contractors working in your neighborhood as well. You can also use social media to scout prospective contractors. Community bulletins and message boards will also have listings as well. 

Try the Construction Industry

Asking those in the construction industry is a straightforward way to find subcontractors. You can ask colleagues or vendors in your area for recommendations. Inquiring with local or regional building or trade associations can be a goldmine of subcontractor prospects. 

Use Angi

Angi is one of the best places online to find contractors and subcontractors near you. You can search by area or the specialty you're looking for. There are also reviews and testimonials from satisfied contractors and homeowners to help you choose the right sub for your project.  

Contractor vs. Subcontractor Wrap-Up

Understanding the difference between contractors and subcontractors is vital for those entering the construction field or those looking to build or renovate a home. 

Contractors are the coach of the project. Subcontractors are specialized field players, like a football kicker or baseball relief pitcher. Both are important to leading the project to victory.