Benefits of Being a Subcontractor vs Independent Contractor

Benefits of Being a Subcontractor vs. Independent Contractor

There’s a draw to being your own boss and setting your own hours and rates. However, before you start your own business, it’s important to decide what you want to do. You have to weigh the benefits and the risks of being a subcontractor vs. independent contractor, because while both work for themselves their jobs are different. Here are some benefits to consider when you decide to start your own subcontracting company.

What is a Subcontractor and Independent Contractor?

Subcontractors and independent contractors, they can work in the same field, but the ultimately do separate jobs. Independent contractors can be general contractors and bid on large projects knowing ahead of time that they will farm some of the work out to subcontractors. But they can also specialize in a specific field and occasionally need to hire out smaller crews to help complete all the work they have. Independent contractors are generally paid by a company or individual to do work explicitly stated in the contract. Subcontractors perform a similar sort of job, but it’s the roles that change.

Subcontractor’s are Specialists

Subcontractors are hired by independent contractors rather than a company or individual to do a specific job. Often subcontractors specialize in a field rather than work as a jack-of-all-trades. It’s because of that specialization that independent or general contractors seek out subcontractors. Independent or general contractors hire subcontractors for a very specific job with a limited scope. One big issue that subcontractors face is a general contractor or independent contractor payment. Because the subcontractor isn’t being paid directly by the person that hired the independent contractor, their payment is dependent upon payment to the independent contractor. And even then, sometimes a general or independent contractor might get paid but not pay a subcontractor. However, there are more legal options for subcontractors.

Independent Contractors are Generalists

Independent contractors, as said earlier, are hired by a company or individual for a job or a series of jobs. Often independent contractors have a series of fields they are knowledgeable in and will contract out work if they need to. Independent contractors can set their own schedules and rates. So long as they have a contract between themselves and their employer, they have work. Independent contractors have different options if the business doesn’t pay the expected amount than subcontractors. Independent contractors can use previous payments and tax documents to establish the contract. They can receive payment by writing to the business explaining the work and payment, then sometimes going to court.

Benefits as a Subcontractor vs. Independent Contractor

Both subcontractors and independent contractors don’t have to worry about tax withholdings. The government doesn’t hold a portion of your paycheck every job when you work as a subcontractor. But the businesses can always deduct business expenses from business taxes as well which can help you grow your business. Where it benefits you to be a subcontractor is in non-payment. For non-payment, subcontractors have a couple of avenues to explore. Subcontractors can get mechanic’s lien on a property, and in some states, they can cease work in many states for non-payment. They also have other options if they aren’t paid by either the independent contractor or general contractor.

Licensing and Insurance

The licensing and insurance for a subcontractor vs. independent contractor is different. Both must acquire to be licenses and insurance, but the type of licensing and insurance is dependent upon the field. Most states require subcontractors and independent contractors to have a license and insurance, but every area is different. Most independent contractors are required to be bonded before a project starts, but subcontractors don’t have to be bonded. And with subcontracting, you negotiate for projects rather than bid more often. Subcontractors aren’t required to acquire bonds the same way independent contractors are expected to unless the subcontractors are bidding on a project.

Conclusion

Being your own boss is enticing, you can set your own hours and your own rates. You have to weigh the benefits and drawbacks of being a subcontractor vs. independent contractor. With the construction labor shortage, there’s a high need for laborers, subcontractors, and independent contractors.