There is an important distinction between using contractors and subcontractors.
What are contractors?
Contractors provide agreed services to a client for a set fee and usually for a set duration under a contract for services. (This is in contrast to a contract of service, eg the employment contract, which is between an employee and employer.)
Examples of using contractors
Many businesses typically use contractors for:
- building work
- marketing services
- IT maintenance and support
- security services
Contractors can charge the client fees by the hour, day or on a lump-sum basis. Their contracts often specify milestones for part payment, eg on completion of specific goals.
What are subcontractors?
Subcontractors undertake a contract from the contractor. Subcontractors undertake work that a contractor cannot do but for which the contractor is responsible.
Subcontractors can be anything from an individual self-employed person - eg a plumber carrying out work for a building contractor - to a large national organisation. A subcontractor has a contract with the contractor for the services provided - an employee of the contractor cannot also be a subcontractor.
For example, a building contractor may hire a subcontractor to complete the electrical wiring part of the contractor's building job. The contractor is responsible to the client for the building job including the part performed by the subcontractor.
Subcontractors might work on task-based contracts with no fixed date, long-term arrangements which can be discontinued at any time, or fixed-term contracts.