A subcontractor is a specialized trade professional or independent business hired by a general contractor to complete a specific part of a project. These workers are common in the construction industry, where job sites rely on many different specialties (think electricians, plumbers, roofers, HVAC technicians, concrete teams, and skilled installers) to complete different phases of the work.

The subcontractor meaning is simple: they are not employees. They operate separately from the contractor, manage their own schedule, set their rates, maintain required insurance cover, and meet all license requirements for their trade. Because they work independently, they send invoices for their work and maintain their own business records.

What Is a Subcontractor?

A subcontractor is by definition:

A self-employed trade specialist or small business that performs specific tasks for a general contractor as part of a larger project.

They are hired for targeted labor or expertise, so in short — not to manage the full build. Unlike employees, subcontractors control how and when their work is done, provided they meet the contract specifications.

Typical subcontractor jobs include:

• Framing
• Plumbing
• Electrical work
• Drywall installation
• Landscaping
• Masonry
• Welding
• Roofing
• Flooring installation
• Painting

In other industries, subcontractors may be designers, IT technicians, machine operators, safety testers, or installation crews.

What subcontractors are responsible for

• Providing their own tools
• Holding the correct subcontractor license (where states require it)
• Carrying subcontractor insurance such as general liability
• Preventing bodily injury or property damage on site
• Following project rules and safety standards
• Submitting accurate invoices

They must also meet subcontractor insurance requirements, which often include listing the general contractor as an additional insured.

Across the U.S., subcontracting is supported by groups like the American Subcontractors Association, which promotes fair contracts, safety, and standard practices. Understanding how subcontracting works helps contractors hire properly, complete work legally, and avoid issues on the job site.

Contractor vs Subcontractor

Understanding the difference helps prevent confusion on the job site.

General Contractor

• Holds the main contract with the client
• Manages the entire project
• Schedules work and oversees quality
• Handles inspections and permits
• Coordinates all trades
• Hires specialty teams as needed
• Manages job site safety and compliance

Learn more in our general contracting 101 guide.

Subcontracting Trade Partner

• Handles only the work they were hired for
• Reports to the general contractor
• Manages their own tools, insurance, and licensing
• Provides specialized trade skills
• Charges for their portion of the project through invoices

Contractors hire these specialists when the job requires skills their own team does not have.

How Subcontracting Works (Step-by-Step)

Here is the complete process broken down into 6 clear stages.

Step 1 — Selecting a Trade Specialist

A contractor or project manager chooses a specialist based on:

• Their certifications
• Their trade license
• Experience on similar projects
• Their insurance status
• Past job site performance

Most large contractors keep a roster of trusted sub-trades they work with regularly.

To understand licenses, read How to Get a General Construction License.

Step 2 — Defining the Scope of Work

Clear scopes prevent disputes and avoid overlaps with other trades. This document sets expectations and includes:

• Materials
• Location of work
• Deadlines
• Safety requirements
• Job site procedures
• Reporting structure

Step 3 — Signing a Subcontractor Agreement

A subcontractor contract protects both parties. It includes:

• Full scope of responsibilities
• Payment terms
• Insurance requirements
• Liability allocation
• Deadlines and milestones
• Change order rules
• Termination clauses

Contractors may use a subcontractor agreement template or request one through legal channels.

Step 4 — Fulfilling Insurance & Legal Requirements

Before work begins, the trade partner submits a certificate of insurance to prove coverage.

Subcontractor insurance requirements often include:

• General liability insurance
  • Covers bodily injury, property damage, and job site accidents
• Workers’ compensation (if they bring their own crew)
• Commercial auto insurance
• Additional insured endorsement
• Coverage limits that match project requirements

Some government contracts require more stringent insurance rules. Always consult your local government guidance to ensure you are adequately covered.

To learn more, read What kind of insurance independent contractors need.

Step 5 — Doing the Work on the Job Site

The specialist completes their assigned tasks. They coordinate with:

• The project manager
• Other subcontracting teams
• Safety supervisors
• Material suppliers

They may use subcontractor management software like Invoice Fly to send invoices, track hours, communicate with contractors and share progress updates.

Step 6 — Submitting an Invoice

Once the work is complete, they send an invoice for:

• Labor
• Materials
• Equipment use
• Travel (when applicable)
• Change orders

Many use invoicing software to create professional invoices or online payments to get paid faster.

Contractors may also use:

• Bookkeeping for contractors
• Construction quotation tools

Subcontractor Agreements and Contract Types

Different project styles require different contract structures.

1. Lump-Sum Contract

A fixed price for all labor and materials.
Good for predictable work with clear scope.

2. Time and Materials Contract

Work is billed hourly, plus material costs.
Useful when the scope may change.

3. Cost-Plus Contract

Trade specialist bills exact cost + a fee/percentage.
Common in custom builds and renovation projects.

4. Government Contracts

These require strict documentation, higher insurance limits, and compliance with federal rules.

5. Template-Based Agreements

Teams often start with a subcontractor agreement template and modify it as needed.

Create accurate project estimates using the:

• Estimate Generator
• Contractor Estimate Template

Insurance, Licensing, and Legal Requirements for Subcontractors

Trade partners must comply with state-specific rules. Most states require:

• Passing trade exams
• Proof of experience
• Proof of insurance
• A business entity registration
• Background checks

Common legal considerations

• Some trades require bonding
• Certain projects require additional insured listings
• State regulators enforce compliance
• Misclassification rules must be followed

Managing Subcontractors Efficiently

Efficient management keeps projects on track and prevents costly delays.

Best practices for managing trade partners

• Verify licenses and insurance early
• Collect certificates before work begins
• Use subcontractor management software for communication
• Hold weekly job site check-ins
• Request progress updates
• Ensure safety compliance
• Maintain accurate paperwork
• Track changes in scope
• Require lien waivers when releasing payment

Check out these other helpful contractor resources from Invoice Fly:

• Construction services
• Best apps for construction
• Lien waiver

Advantages and Challenges of Subcontracting

Advantages

• Flexible schedule
• Ability to work for multiple contractors
• Opportunity to specialize in high-demand trades
• Independence in choosing jobs
• Potential for high earning power

Challenges

• Managing insurance and compliance
• Finding steady work during slow seasons
• Managing cash flow and late payments
• Competing for government contracts
• Handling all admin tasks alone

Ready To Become A Subcontractor?

Specialty contractors play a vital role in construction and other project-based industries. They bring expertise, manage their own business obligations, and help projects stay on schedule. Understanding contracts, insurance requirements, and legal rules ensures smooth working relationships between contractors and the trade partners they rely on.To simplify invoicing, estimates, and payment management, try Invoice Fly’s professional invoicing software — for free!