CONTRACTING and SUBCONTRACTING, main DIFFERENCES
Recruitment and subcontracting: What do you need to know?
The concepts of contracting and subcontracting, which refer to the provision of services, must be correctly delimited because they have different consequences in the areas of liability and employment. More details are given here.
Differences between contracting and subcontracting
Contracting and subcontracting is mainly used with regard to the services that a company provides.
It would not apply, for example, to the contracts of an employee, who is always answerable to an employer.
It is common for public works or construction contracts to be executed by a large company, known as a contractor.
But, within the whole machinery, it can opt for two ways: either to carry out all the activity directly through its workforce or, more commonly, to subcontract certain parts of the process to other companies, usually SMEs and freelancers.
This approach, when the workload involved is high and has a relatively long duration, benefits both parties.
On the one hand, the contractor saves on labour costs because he hires a company to provide a service, without having to pay the payroll.
On the other hand, the subcontractor, although at lower prices, is assured of a fixed workload for a certain period of time.
However, if there is a problem of non-compliance with deadlines, the contractor is ultimately responsible.
What happens is that the contractor usually signs some kind of penalty agreement with the subcontractor to cover this eventuality.
Not surprisingly, the contractor supervises the subcontractor.
There are several examples of contracting and subcontracting that can be applied, both in the public and private sector. These are the most common ones:
General liability in contracting and subcontracting
If your company contracts or subcontracts with other companies to carry out works or services corresponding to your own activity, you may end up being liable for the debts incurred by the contractor or subcontractor.
Tasks that form part of the company’s core business and are indispensable to the business are considered as own activity.
For example, in the case of construction companies, excavation, repair or painting work is own activity.
As a general rule, the liabilities that may arise in an own-activity contract are as follows:
Workers’ wages:
- The main employer will be jointly and severally liable for the debts that the contractor may generate in salary matters with its workers.
However, this liability only covers the salaries of the workers linked to the contract, and this joint and several liability will only be enforceable during the year following the end of the contract.
Social security contributions:
The main company, during the three years following the termination of the contract, is jointly and severally liable for the debts that the contractor has generated with the Social Security during the contract.
Therefore, it is obliged to check at the beginning of the contract that the contractor is up to date with Social Security payments.
Contracting and subcontracting: cleaning or maintenance
Hotels, shopping centres or public buildings usually outsource cleaning or maintenance to an external company.
This company is responsible for providing the service and keeping the facilities in perfect condition.
Building security
Building security is another aspect that is often outsourced in Spain.
Although the police have a monopoly on violence, there are private security companies that are responsible for guarding and guarding office buildings or shopping centres.
In the event of a crime, the security forces are notified because their presence is, above all, a deterrent.
Infrastructure construction
Infrastructure construction is another common case of subcontracting.
It tends to occur in ambitious and costly projects such as airports, highways or hospitals.
Although one company is in charge of managing and supervising the project, it is common for certain parts to be subcontracted to other companies or freelancers.
Unlike the other cases, we are talking about a participation for the duration of the project, which is usually more than a year.
Liability in contracting or subcontracting in the construction industry
Specific construction regulation
In addition to the above liability regime (which applies generally), construction companies are subject to an additional liability regime.
Specifically, they are jointly and severally liable for the wages and social security debts of the subcontractor if the latter is not registered in the Register of Accredited Companies (REA).
Therefore, always remember to ask subcontractors for a certificate of registration in the REA (a register in which construction companies are registered and which certifies that they comply with their obligations in terms of risk prevention).
Levels of the chain
In addition, the contractor is also liable for the subcontractor’s wage and social security debts if the subcontractor extends the subcontracting to an additional tier.
It is therefore advisable to check that subcontractors do not extend the chain.
For these purposes, the levels to be respected in subcontracting are as follows:
- The contractor may contract with the subcontracting companies or self-employed workers for the execution of the work that it has contracted with the promoter. In addition, both the first and the second subcontractor may subcontract the execution of the work contracted by each of them.
However, the third subcontractor may not subcontract: if he does so, the principal employer is jointly and severally liable for the debts of this third subcontractor.
- The self-employed worker may not subcontract the work entrusted to him (neither to other subcontractors nor to other self-employed workers).
If he does so, the contractor is jointly and severally liable for his debts.
- Nor may subcontractors who only provide labour (since they do not use their own work equipment other than hand tools, including portable motorised tools, to carry out their activity).
If they subcontract, the contractor is jointly and severally liable for their debts.
Therefore...
Knowing how contracting and outsourcing works is important for companies and freelancers.
At Asesoría Orihuela Costa we provide a service for professionals with all the legal guarantees to avoid problems in the future. Contact us!
