Contractors vs Sub-Contractors: What’s The Difference?

As a small business owner, you may be wondering about the difference between a contractor and a sub-contractor. Whether you are a client, independent contractor, or sub-contractor, it is important to be aware of these differences to ensure you can properly comply with your rights and responsibilities.

Working with a contractor or sub-contracting the work out can be a very valuable tool for your business, especially in situations where you may need additional hands or specialised skills on a one-off basis. 

Generally speaking, the term ‘contractor’ can be understood as an umbrella term that encompasses a range of individuals and businesses who operate as independent contractors or sub-contractors. 

But before we dive into the differences, it is also important to ensure you know the difference between a contractor and an employee. This distinction affects your relationship with the worker, and getting it wrong may have huge consequences for your business. 

What’s The Difference Between Contractors And Subcontractors?

An independent contractor can either be an individual person or a company. They work directly with the client (‘principal’) to provide goods or perform a service in accordance with a contract, such as a Contractor Agreement.

In contrast, sub-contractors are generally engaged by an independent contractor to help fulfil a contract they have with the principal. As such, work performed by the sub-contractor is generally specialised to one specific part of the work that the independent contractor is engaged to complete. 

The key point is that a sub-contractor has an agreement with the independent contractor, and not the principal. Therefore, the independent contractor will be paid by the principal, and the sub-contractor will be paid by the independent contractor.

The example above highlights some key areas you need to be aware of as an independent contractor and sub-contractor, especially in relation to relevant contracts. 

Are You Allowed To Sub-Contract Work?

If you are looking to sub-contract any work, it is important to check your Contractor Agreement for any clauses expressly dealing with sub-contracting. 

Unlike the agreement between Daniel and Jordan, some clients may not want to involve sub-contractors or perhaps they wish to be involved in decisions to engage them. These preferences are often reflected in the Contractor Agreement, where it might say:

• You can sub-contract any part of the work; 
• You cannot sub-contract any part of the work; or 
• You must not sub-contract any part of the work without obtaining prior written approval from your client.

In some cases, you will know that you need to engage a sub-contractor for the work you’re hired to complete. Here, it may be a good idea to discuss your options around hiring sub-contractors with the client before signing a contract and starting work. 

It can be helpful to think about the Contractor Agreement (i.e. the agreement you have with the principal) as the ‘Head Contract’, as it will govern how you will engage and interact with sub-contractors, as well as any other contracts and agreements flowing on from that dealing.

What Is A Sub-Contractor Agreement? When Do You Need One?

A Sub-Contractor Agreement is an agreement between the contractor (e.g. Jordan) and the sub-contractor (e.g. Fatima). 

It sets out the scope and standard of the services to be provided, the terms of the relationship between the contractor and sub-contractor, as well as other business processes (e.g. fees and payment, confidentiality, ownership of IP and termination).

If your business engages sub-contractors, it is useful to have a Sub-Contractor Agreement in place to make sure you get the right goods or services delivered at the right time, protect your business’ assets and IP, and avoid any unnecessary disputes down the track. It is also a useful tool to help protect your reputation by ensuring that your sub-contractor performs the work according to the standard that you have promised the principal in the Head Contract.

A good way to ensure you and the sub-contractor are on the same page regarding the work that needs to be performed is by referring to the Head Contract in the Sub-Contractor Agreement. You may wish to bind the sub-contractor to the terms and conditions contained within the Head Contract and prevent any misunderstanding or inconsistencies surrounding contractual obligations.

Want to find out more about engaging sub-contractors? We have a guide covering everything you need to know here. 

Who Is Responsible If Something Goes Wrong?

What happens if Jordan checks in on Fatima’s work and finds that she has done a poor job? Jordan knows that Daniel will not be satisfied with the standard of plumbing that Fatima has carried out. In this case, because Jordan engaged Fatima to carry out work on his behalf, it is likely that he will be held accountable for her work.

Generally speaking, the independent contractor will be held responsible for any defects in the work performed by the sub-contractor. However, with a well-drafted Sub-Contractor Agreement, you can ensure that the sub-contractor is responsible for things such as the quality and standard of their work, and completing the work within a specified time period. If these changes are made, it is a good idea to provide some rights, including allowing for time extensions for the completion of work.

Keeping this in mind, it’s important to hire sub-contractors that you know and trust, and to continue building a strong and positive relationship with them. This will help you maintain a good reputation, not only with clients but also other contractors that may look to work with you in the future!

Want To Find Out More?

Making sure you have a well-drafted Contractor Agreement or Sub-Contractor Agreement is extremely important to making sure your business is protected when it comes to engaging an independent contractor or sub-contractor, as well as providing goods and services to a client.
Whether you wish to review existing contracts or want help drafting future contracts, Sprintlaw has a team of friendly and experienced lawyers who are here to help! Feel free to get in touch with us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations consultation.

Kayleigh Yap

Kayleigh is a graduate in Arts and Law from the University of New South Wales. With an interest in human rights and intellectual property law, she has experience working in communications and marketing for small businesses and not-for-profits.