Things You Need to Know When Hiring Subcontractors

  • Editorial Team
  • News
  • 20 July 2022

It is extremely important to know your responsibilities when hiring subcontractors to work on construction projects. Although employing subcontractors is common in the construction business, you still need to do your research on subcontractor taxes, insurance, and contract terms prior to employing anybody. This way, you are certain that they will be able to complete the task without your business taking on any extra financial risk.

It is great if your construction firm is so profitable that you require assistance from outside sources. However, selecting a subcontractor for a building project requires making decisions about taxes, insurance, and the possibility of legal issues. You may save money in the long run by being aware of your rights and a few subcontractor rules.

Who Is a Subcontractor?

A contractor that performs services for another contractor instead of the customer is known as a subcontractor. Subcontractors are often skilled individuals. A general contractor or a builder who oversees the whole project and maintains communications with the customer is frequently the lead contractor on a given project.

A subcontractor’s main focus remains on their own part of the job, which may involve any aspect of construction that calls for specialization including electrical installation, flooring, drywall, masonry, plumbing, and more. These subcontractors communicate with the builder instead of the customer and are employed by the builder under a contract. The builder is similarly employed by the client under a contract.

It is crucial to realize that a subcontractor is not, technically speaking, an employee of the contractor. They may team up, and the contractor may provide the subcontractor with instructions on occasions, but the subcontractor is a private entity, not a regular employee, and is compensated and taxed in the same ways as the contractor. The regulations governing employment do not apply to their commercial partnership. They will instead draft a contract that details the work that will be carried out and how much it will cost.

Builders and general contractors frequently employ subcontractors. They are an essential component of a construction business. However, you should be aware of the regulations governing things like insurance and taxation before employing someone.

Subcontractor Taxes

A subcontractor is treated similarly to an independent contractor with the same tax forms as a general contractor for income tax purposes. However, sometimes subcontractors can be viewed as an employee by the Internal Revenue Service or the state regulators. If that happens, you may end up having to pay for overtime, perks, back taxes, and other things. While it is uncommon, it can be quite expensive. If you are worried, you might want to speak with an accountant or a lawyer.

Insurance and Licencing Requirements for Subcontractors

Another thing that you need to consider is whether the subcontractor has their own general liability insurance, employee’s compensation insurance, and a subcontractor licence. A contractor who employs an unlicensed or uninsured subcontractor may be held responsible for any accidents or legal actions brought about by the subcontractor’s conduct. Many contractors will not hire unlicensed or uninsured subcontractors because of how fast such costs can pile up. Make sure that the subcontractors you hire are properly licensed and insured. Otherwise, your expenses will include more than just the cost of used motor graders for sale, and before you know it, your project will be way over budget.