NYC Insurance Blog

The Difference Between Contractors and Subcontractors.

Business owners can choose contractors or subcontractors to complete different projects. Although there are numerous similarities, the two serve different functions in a project. As an employer or business owner, it is important to know that you are hiring the right person for the job. In this article, we will discuss the difference between contractors and subcontractors, their tasks, and the type of insurance they should purchase. 

What is a Contractor?

A contractor is a person or company hired directly by a property owner to complete a project. Therefore, contractors facilitate communication between the clients, crew, and other parties involved in the project. Also known as prime or general contractors, contractors have the liberty of leading the construction crew and negotiating with vendors to get the best deal and supply of resources. Remember, since they run their own businesses, contractors can complete an entire project themselves or hire someone else. However, they are deemed solely responsible for fulfilling the contract even if they subcontract the project. 

In most cases, contractors specialize in specific skill sets, for example, services, labor, or equipment needed to finish a project. The main functions of a contractor include the following:

• Securing contracts – as a manager, a contractor must secure clients and projects. It is not an easy task because you need to network and establish a good reputation. It is also essential for contractors to understand the project and what's needed to complete the project. 
• Delivering a complete project – contractors become overseers after securing a contract/project. As a contractor, your main responsibility is to delegate and oversee the entire project. With that in mind, you must ensure the project progresses well within the time frame. 

What is a subcontractor?

Subcontractors are usually skilled and knowledgeable in certain areas. Therefore, subcontractors are hired by someone else besides the project owner. Common subcontractors include plumbers, electricians, carpenters, and roofers. Hiring subcontractors is a good move because they bring expertise, thus reducing project risks. While contractors handle a project's managerial and business side, subcontractors provide physical labor like painting or installing windows. Give us a call to get a Free Quote Today!

Can a Subcontractor be a Contractor?

Yes. A subcontractor can hire other subcontractors and delegate the work, although this is highly discouraged because it becomes harder for the contractor to oversee the project. Also, it can cause delays or, worse, deliver shoddy work, which could lead to problems like lawsuits. Typically, contractors ask subcontractors to sign an agreement to ensure everything goes to plan. When subcontractors hire another subcontractor, it is crucial to check their licensing, experience level and talk to their contractors to ensure everyone is okay with the plan. 

Sometimes, contractors prefer working with subcontractors instead of hiring their own staff. Subcontracting is cheaper and easy to oversee, unlike having your own staff/employees. Since they are handling other things, contractors find time to secure contracts and focus on other pressing matters like delivering completed projects. 

Buying the right insurance policies is crucial to protect yourself and your business, whether you are a contractor or subcontractor. Here are some of the policies you need:

• General liability insurance (GLI) protects you against lawsuits resulting from 3rd part property damage, 3rd party bodily injury, or advertising injury. While general liability insurance is not a must in most states, some clients require proof of liability insurance before signing a contract to avoid possible financial losses or lawsuits.
• Errors and omissions insurance (E&O) – E&O protects your business from lawsuits claiming that your work was incomplete, inaccurate, or late. Mistakes or errors can occur, and an E&O policy can cover the cost of the lawsuit, damages incurred, or settlements.
• Cyber liability insurance – depending on the type of services you offer as a contractor or subcontractor; you might need to purchase cyber liability insurance. As a software developer or data scientist handling sensitive information, this insurance policy can pay for legal fees, extortion demands, credit monitoring, or regulatory fines in the event of a cyber-attack.
• Workers' compensation insurance – if you have more than one employee, workers' compensation can save you a lot of money. Workers' comp covers lost wages and medical expenses if an employee suffers work-related injury or illness. 

If you do not have your own insurance policy, avoid taking the risk and ask your client to add you as an additional insured to their insurance policy. As an additional insured, you are guaranteed coverage until the contract ends. Although this might briefly increase the client's insurance premium, it is a good move.  We can help you with the coverage you need today!

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