Contractors, independent contractors and subcontractors

The terms contractor, independent contractor and subcontractor get thrown around a lot, but have you ever wondered what each of these terms really mean?

While there are subtle differences between them, in the right circumstances, you can be all three at the same time.

Independent contractors

Independent contractors run their own business and are hired to do a set task or tasks based on certain terms within a contract. Independent contractors generally use their own processes, tools and methods to complete the work. They can delegate or subcontract some of the tasks if they need, and can work for a number of different clients at the same time.

It's important to understand the difference between an independent contractor and an employee, as this can affect things like tax obligations, insurance obligations, and leave entitlements.

Check out our Independent contractors decision tool to work out if you or your worker is an independent contractor or an employee.

Subcontractors

A subcontractor is an independent contractor that's hired by another independent contractor to help them complete their contracted work.

For example:

Mary is looking to build a house. Mary contracts Jon to build the house for her. Jon is a general contractor. However, Jon doesn't do all of the work himself, he contracts Barry to help with laying the foundation of the house. As Barry is contracted by Jon, and not Mary, Barry is a subcontractor under Jon.

There can also be second-tier subcontractors, where an individual or business is contracted by subcontractors to do work.

Contractors

A contractor describes a person, business or organisation that enters into a contract with another person, business or organisation for work, usually at a fixed price.

Independent contractors and subcontractors can both be described as a form of contractor. Contractor is simply a shortened form of the words, and is used informally.

Rights and responsibilities

Whether you're a general contractor or a subcontractor, your rights and responsibilities as an independent contractor remain the same. However, if you are hiring a subcontractor, you will need to fulfil any obligations you may have as a hirer (usually included within the terms of the contract).

To find out more about your entitlements and obligations, check out our Independent contractors topic.

Contractors and employees

Compared to contractors, employees have very different rights and obligations. Employees are generally:

  • paid a wage
  • have set hours of work
  • entitled to paid holiday leave and sick leave
  • entitled to superannuation.

Because employees have certain rights that contractors aren't entitled to, sometimes employers try to disguise an employee as an independent contractor, to avoid having to provide them with their entitlements. This is known as sham contracting and is illegal.

If you are an independent contractor, but you believe you should actually be an employee, check the Fair Work Ombudsman website for more information on what you can do.

It's important to note that even if you have an ABN, that doesn't automatically make you a contractor.

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