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As a small business owner in 2025, 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 crucial to understand these distinctions so you can comply with your rights and responsibilities under the latest regulatory guidelines.
Working with a contractor or opting for sub-contracting can be an excellent strategy for your business, particularly if you require extra hands or specialised skills on a one-off or project basis. Recent updates in contract law mean that clear agreements are more important than ever to protect all parties involved.
Generally speaking, the term ‘contractor’ is used as an umbrella term that includes both individuals and companies working as independent contractors and those who choose to sub-contract part of their workload. It’s a flexible term that adapts to the evolving gig economy in 2025.
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 legal obligations and relationships with workers, and misclassification can have serious repercussions for your business.
What’s The Difference Between Contractors And Subcontractors?
An independent contractor can be an individual or a company that works directly with the client (or ‘principal’) to provide goods or services in accordance with a contract, such as a Contractor Agreement. In today’s market, these agreements are often tailored to reflect modern working practices and digital communication methods.
In contrast, sub-contractors are typically engaged by an independent contractor to help fulfil a contract they have with the principal. The work performed by a sub-contractor is usually specific to a certain aspect of the project that the primary contractor has been hired to complete. With evolving industry standards in 2025, it is more common to see detailed clauses that govern these relationships in order to avoid confusion.
The key point is that a sub-contractor has an agreement with the independent contractor – not the principal. Consequently, the independent contractor receives payment from the principal, and then in turn, pays the sub-contractor.
Example
Daniel wants to renovate his kitchen and bathrooms in his home. He hires Jordan to complete the project under a Contractor Agreement that reflects current legal requirements. Under this contract, Jordan has the option to sub-contract parts of the work if necessary.
Since Jordan doesn’t specialise in plumbing, he decides to sub-contract that work to Fatima. Jordan then drafts a Sub-Contractor Agreement that clearly outlines the scope of plumbing work, responsibilities, fees, and quality standards both parties must meet. For extra assurance, Jordan refers to the terms in his Head Contract – a strategy also recommended in our Contract Review guide.
The example above highlights some key areas you need to be aware of as an independent contractor or sub-contractor, especially in relation to the relevant contracts. In 2025, ensuring your documentation is up to date with current law is essential to safeguarding your business interests.
Are You Allowed To Sub-Contract Work?
If you are considering sub-contracting any part of your work, it is important to check your Contractor Agreement for clauses specifically addressing sub-contracting. This will detail whether you can delegate parts of the project, need prior written approval, or if sub-contracting is not permitted at all.
Unlike the arrangement between Daniel and Jordan, some principals prefer not to involve sub-contractors or they may wish to be consulted on any such arrangements. These preferences are typically set out in the Contractor Agreement, which may state:
- 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.
Before signing any contract, it is a wise idea to discuss engaging sub-contractors with your client. This proactive approach helps ensure all parties are comfortable with the workflow and that the final deliverables meet expectations.
You can think of the Contractor Agreement as the ‘Head Contract’, which governs how you engage with sub-contractors as well as the downstream contractual obligations. For further clarity on setting appropriate terms, our resources on contract drafting are a helpful reference.
What Is A Sub-Contractor Agreement? When Do You Need One?
A Sub-Contractor Agreement is a contract between the primary contractor (for instance, Jordan) and the sub-contractor (Fatima). This document outlines the scope and standard of the services to be provided, the terms of the relationship, payment arrangements, confidentiality, ownership of intellectual property (see our updated IP licence guidelines), and termination provisions.
If your business regularly engages sub-contractors, having a detailed Sub-Contractor Agreement in place is invaluable in ensuring timely delivery of goods and services, protecting your assets and intellectual property, and reducing disputes. It also helps maintain your professional reputation by ensuring the sub-contractor delivers work that aligns with the standards promised in the Head Contract.
It is advisable to reference the Head Contract within the Sub-Contractor Agreement-this binds the sub-contractor to the key terms agreed with the principal, minimising any potential inconsistencies. You can also consult our Contract Review service to ensure your agreements are robust and current.
Want to find out more about engaging sub-contractors? We have a guide covering everything you need to know here.
In addition, many businesses in 2025 are now including detailed dispute resolution and insurance clauses in both Contractor and Sub-Contractor Agreements. These provisions not only help resolve any issues quickly but also protect your business in the event of unforeseen problems during project execution. For further advice on this topic, you might find our article on confidentiality and dispute resolution enlightening.
Who Is Responsible If Something Goes Wrong?
If Jordan later inspects Fatima’s work and discovers that it does not meet the required standard, the principal – Daniel – will expect the work to be rectified. In such situations, because Jordan engaged Fatima to complete the work, he will typically be held accountable for any defects. Under the updated 2025 guidance, independent contractors remain primarily responsible for the quality of the work, unless the Sub-Contractor Agreement specifically allocates responsibility for those issues.
Generally speaking, the independent contractor is liable for any defects in the work performed by the sub-contractor. However, a well-drafted Sub-Contractor Agreement will clearly specify that the sub-contractor is responsible for ensuring the work meets the agreed standard and is completed within the specified timeframe. It is also common practice now to include provisions that allow for reasonable time extensions in case of unforeseen delays.
Maintaining strong, trust-based relationships with your sub-contractors is key, and clear contractual terms are essential for protecting your business reputation. This approach helps ensure that if something goes wrong, responsibilities are clearly delineated, and remedial measures can be applied swiftly.
Want To Find Out More?
Ensuring you have a robust, well-drafted Contractor Agreement or Sub-Contractor Agreement is critical to safeguarding your business when engaging independent contractors or sub-contractors. Whether you need to review your existing contracts or require assistance drafting updated agreements that comply with 2025 standards, Sprintlaw’s team of friendly and experienced lawyers is here to help. For more comprehensive legal solutions and advice, visit our Getting Started With Your Legals page or get in touch with us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations consultation.
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