Contractor vs Subcontractor: What Is the Difference and Which Should You Be?

The distinction between general contractor and subcontractor is one of the most practically important in the US construction and trades industry — it determines your legal relationships, your tax treatment, your insurance requirements, and ultimately your earning potential. Understanding which structure applies to you, and which is right for your business goals, matters more than most tradespeople realize.

What Is a General Contractor?

A general contractor (GC) is hired directly by the client — homeowner, property developer, or business — to deliver a project. The GC takes overall responsibility for the project: managing the timeline, coordinating trades, pulling permits, and delivering the finished result. The GC typically does not perform all the physical work — they hire subcontractors for specialist trades. Running as a GC requires a general contractor’s license (requirements vary significantly by state), appropriate insurance (general liability at minimum, typically $1M+), and the ability to manage multiple trades and subcontractors simultaneously. The margin model is different from trade work — GCs charge a markup on subcontractor costs and materials, plus a project management fee.

What Is a Subcontractor?

A subcontractor is hired by a GC (or directly by a property owner) to perform a specific scope of trade work on a project. A plumber hired to install all the pipework on a new house build is a subcontractor. An electrician hired by a GC to wire a commercial fit-out is a subcontractor.

Tax Treatment: The 1099 vs W-2 Question

In the US, subcontractors are typically paid as 1099 independent contractors — you invoice for your work, pay your own self-employment taxes, and are responsible for quarterly estimated tax payments. Employees (W-2) have taxes withheld by their employer. The IRS has specific rules about worker classification — misclassification as independent contractor when you should be an employee is a compliance risk for the hiring GC.

Which Pays More?

It depends entirely on scale. A skilled subcontractor in a high-demand trade can earn significantly more per hour than many GCs. A GC who effectively manages large projects — with good margins and efficient coordination — can earn substantially more than a direct trade worker. The GC model scales better but requires more capital, more management skill, and more risk tolerance.