Independent Contractor vs Subcontractor

20 Replies

I don't know why I'm having a hard time differentiating the two. What is the difference between an Independent Contractor and a Subcontractor? Let's say I hire a general contractor but I decide to choose and pay my own electrician. Would that electrician be considered a subcontractor or and independent? (and does it matter?)

Typically "independent contractor" is a term used to differentiate from employees of a corporation (for tax and other reasons), so in this case it is likely that they are all independent contractors.

The benefit of hiring a GC is that they would source the sub-contractors and you only have to deal with and pay the GC, though it is a best practice to get lien waivers from sub-contractors as well.

@Jeff B. So in doing that, are you completely hands off when hiring the subs? Or, do you require your GC to allow you to approve/ok the subs? I hear some people put it in their contracts with the GC that they would like to separately engage in contracts with the GC's subs. (If I am understanding correctly)

Originally posted by @Sean S.:

@Percy N. Thank you. I get it and I guess that's why it is best to have a separate Independent Contractor Agreement, W-9, etc. for each?

 Think of it this way: get a W9 for whoever you are writing checks to.  If you are writing a check to a GC and he is hiring subcontractors, you only get a W9 from the GC.  If you are directly hiring a subcontractor, you will get a W9 from them.

Get conditional waivers from your GC and their subs as a condition of payment.  When final payments are made, get unconditional waivers.

Originally posted by @Sean S.:

@Jeff B.  I hear some people put it in their contracts with the GC that they would like to separately engage in contracts with the GC's subs. (If I am understanding correctly)

 That is a horribly bad idea.  You just neutered your GC.  When I was on the GC side, if we got that as a condition of work, we passed.  Why hire a GC if you are going to manage the subs?

The subs push back if the GC gives direction is their contract is with you.

Thanks @Hugh Ayles  I understand. 

@Jake Armstrong I believe you. I'm learning that there are a good amount of unprofessional people out there. It's been a rude awakening to witness how many contractors promise one thing a don't do it. Something as simple as giving a bid. I've had contractors literally come out and spend hours at the property only to promise and never submit their bid. Makes no sense to me. 

@Glenn Banks  I might be misunderstanding a section of a book I read that states (in reference to items to include in the Independent Contractor Agreement): "State that no subcontractors are to be hired without your approval. It should also specify that subcontractors are to be paid by the owner and that each subcontractor will also sign a lien waiver as applicable."

I believe that is what influenced my thinking that I would need a separate agreement for each sub. Again, I must be misunderstanding what I read.

@Sean S.

Here is the irony: people complain about how they have to babysit their contractors.  They beat them down on price and have contracts that cause issues on site.

If you have reasonable pricing expectations and reasonable contracts, you get good contractors which end up saving you time, conflicts, and eventually money.

@Sean S.

As the owner you have the right to approve subs.  Be prepared that if you veto a sub, it may cost more to use the next sub.

Regarding pay, by paying direct, you are headed for contract issues.  When you pay a sub directly, you are effectively contracting directly with them.  Please be careful with these books.  To be fair, I have not read any of them but some of the interpretations I see are troubling. 

If you do not trust your GC and you want to make sure your money is going to pay for the subs' work on your project, you can opt for joint checks.  A joint check is where you make a check out to both the GC and the sub.  You are not losing any of the linear contract agreements this way.  By linear I mean your contract is with the GC and the GC's contract is with the subs.

Hi Sean S. If you are hiring anyone past the GC you would be the GC because you are basically hiring subs to complete the work. Also if you were to ever get in a legal dispute you would need to be careful because even though you are hiring a supposed GC since you are hiring another sub it would break that chain. If I were you And you don't want to be a GC I would hire the GC and have them hire directly the sub of your choice even if they are just passing along checks. Some GCs may push back on this but that's because they may generally mark on top of what that trade is doing, which in places is justified. An independent contractor does not relate here as that could be a doctor, or lawyer or someone who you pay but can't dictate how the work is done. A sub you can.

@Jason Yarusi

In contracting, "independent contractor" has to do with worker's comp insurance and taxes.  It determines who is responsible for paying worker's comp in case of a claim and who is responsible for certain payroll taxes.  This is established either by language in the contracts and subcontracts or, at least in Texas, there is a form that is signed acknowledging the subcontractor as an independent contractor.

As you can see, the term can be confusing.  Sometimes I think a term is heard and starts getting used without an understanding of it.  As an employer, I also have to be familiar with the use you indicated and its very legal consequences regarding employees are people hired as independent contractors, but that is a discussion for its own thread.

@Sean S. I agree with the other guys here, let your GC handle the subs and run the project. Or learn on the fly,be your own GC for the project and call in a pro to help you manage when you get in a jam. The second option is more risky but hey, it may pay off. 

@Jason Yarusi @Hugh Ayles The overwhelming majority of investors I hear or read about agree with your way of doing things and I do as well. Every once in awhile I will hear something different on a podcast or in a book and I begin to wonder if it is better/cheaper to find and pay your own subs. But, I do see what you're saying and I know it makes the most sense to find a GC I can trust to do all of that so I can focus on other things. Thanks again for your time.