The pros and cons of becoming a subcontractor

Rose Morrison imageRose Morrison  •  

Subcontractor pros and cons

Choosing to be a subcontractor can mean a reliable source of work without seeking new clients or being employed by a company. However, it can come with some significant drawbacks — pay may be less reliable, taxes may be more complicated and you’ll probably have less control over who you work with on a day-to-day basis.

Here are the most important advantages and disadvantages of working as a subcontractor — and how to know if it’s a good fit for you compared to the life of a contractor. There’s a lot to consider before deciding whether or not this style of work is right for you.

Subcontractors are specialists

One of the biggest differences between subcontractor and contractor expectations is that clients often expect the latter to be generalists.

Typically, customers will bring on a general contractor for a job. They may need to perform several different tasks that may require a wide range of specialized skills. For example, a client wanting to redesign a building’s garden may expect broad experience with landscaping — including soil analysis, irrigation, hardscaping, softscaping and maintenance.

The general contractor will likely bring on subcontractors to handle the more specialized tasks — like outdoor plumbing, horticultural advice or property maintenance after the project is finished.

This gives subcontractors more room to develop a specialized skill set and take on jobs that contractors with more generalized knowledge may not be able to manage. You can also hone your abilities to a point where you are the first subcontractor called during certain specialized projects.

Do your skills lean more towards big-picture, communication, and organizational stuff, or do you want to focus on a handful of specific, tactile skills and make yourself an expert in those niches? This is one of the questions in front of you.

You have the option of being an employee or your own boss

As a subcontractor, you can start your own subcontractor business, or you can work as an employee for someone else. Each has its pros and cons, and you can decide based on which fit with your goals most.

If you decide to start your own subcontracting business, you’ll be able to reap many of the most significant benefits of working as a general contractor — like greater flexibility in job hours and scheduling.

You’ll also be less committed to the clients you work with. If you don’t like a particular job, you’re typically free to move on to working with someone else once the job is complete.

It’s possible you’ll make more money working for yourself than you would as a general contractor, especially if your particular skill set is in high demand, but that’s not a guarantee. Moreover, as an general contractor, you face less responsibility for chasing down work and, potentially, a more consistent workload than if you were a subcontractor.

Your mileage may vary. You’ll also face many of the disadvantages of going freelance. You’ll be responsible for paying your own taxes and for keeping track of your income and expenses. As a freelancer or independent contractor, you may also need to pay the higher self-employment tax rate. You may need to pay quarterly estimated taxes, depending on how much you make from your subcontracting work.

If you decide to go freelance, you almost certainly won’t receive benefits through an employer like you would as working for a general contractor. You’ll need to purchase your own health insurance and you won’t receive paid sick or vacation days.

Nevertheless, it may be possible to balance the workload of a freelance subcontractor with the responsibilities of a part-time or even full-time general contractor, depending on your ambition and circumstances, so you receive the best benefits of each.

Subcontractors and general contractors have some similarities

As a subcontractor, you’ll still need to carefully manage your relationship with the person or organization that hired you. The techniques required to maintain a good client-contractor relationship — like regular communication, transparency and flexibility — will still be essential. However, you’ll be focused on the relationship with the general contractor instead.

Because subcontracts are negotiated rather than bid upon, you may not need bonds for subcontracts. This is in contrast to primary contracts, which are usually required to be bonded by law.

Licensing and insurance as a subcontractor are similar to that of a general contractor. The specific licensing you need may change, but you won’t be any less bound by licensing law. You’re also not likely to face lower standards and regulatory scrutiny.

As a subcontractor, you’ll still be responsible for managing your time by recording hours worked and tracking materials used during the construction process. This means construction management software will be just as essential for a subcontractor as it for a general contractor — through contractors may want specialized features that are more relevant to their particular skill set.

You’ll need to depend on general contractors

While subcontractors will have more freedom than contractors in some areas, they’re limited in others.

As a subcontractor, your payment is often dependent upon a general contractor. If the project isn’t finished due to events outside of your control — or if payment negotiations between the general contractor and primary client break down — you may be caught waiting for compensation on finished work and used materials.

An employee of a general contractor knows roughly who they will work with every day. On the other hand, subcontractors may regularly work with new teams that use unfamiliar processes. They may also have a working style that is a bad fit with the way you and your team approach your jobs. This can create tension and cause you to work less efficiently.

In some cases, subcontractors can charge more per hour than they would as a general contractor due to this specialized experience. Most of the time, however, you will make less money. Typically, contractors are paid more because they’re responsible for their own work and coordinating their subcontractors.

Is it worth working as a subcontractor?

Becoming a subcontractor can provide some benefits that contractors don’t have access to. You may have more room to pursue a specialty, greater flexibility in the projects you take on and more control over your schedule. As a general contractor, the scope of your work widens and you become responsible for coordinating and communicating with several parties. Subcontractors have relatively more straightforward job expectations, although the take home pay reflects this.

Subcontracting can be a great way to get experience with a wider variety of construction labor and gain more control over your work. Be sure to weigh your options and make the right choice for you.

Rose Morrison is the managing editor of Renovated, where she covers contracting and residential construction topics. Check out her Twitter to see more of her work.

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