Subcontractors work with general contractors to complete various milestones in a construction project. The general contractor allocates some of the contract’s objectives to a subcontractor, who is then responsible for the assigned tasks. The contractual agreement defines the terms and conditions that protect the rights of general contractors and their employers. This extends to subcontractors when they take up their part of the job. Subcontractor laws make sure that you, as a subcontractor, are entitled to various rights on the project. This includes aspects like worker safety, site safety, and timely wages. The laws may differ from state to state, but they all help you leverage your construction expertise and resources.
The project contract also requires subcontractors to abide by the stated terms. It tells you exactly what you are responsible – and accountable – for during a project. Meeting deadlines, following construction protocols, sticking to the budget, and communicating frequently with stakeholders are some essential goals. The key terms and expectations need to be mentioned clearly in a contract. Views, obligations, and project responsibilities of both the general contractor and subcontractor should converge at mutual points. This avoids conflicts and miscommunications down the road.
Knowing your subcontractor laws brings transparency and credibility to your work – so you take the responsibility for only your actions and not for those around you. This article explores some main elements of subcontractor laws that promote efficient work ethics and prevent violations between the involved parties.
The subcontractor law checklist
A subcontractor agreement includes different clauses and rules to mutually agree on with your main contractor. To make things easy and workable between both parties, you need to make sure that you define your clauses clearly and communicate well. This prevents untimely disputes that may impact the project and your collaboration with the hiring team. Various elements make up a complete construction contract, and here are some key aspects to mark off your checklist before you take up a project as a subcontractor.
Employer vs contractor
In a construction project, there are generally two separate contracts: one between the employer and the general contractor; one between the general contractor and the subcontractor. In this way, you are not contractually linked to the employer – you are only in agreement with your hiring contractor. Once the employer hires a contractor to oversee the construction, it is up to the contractor to hire their own team of subcontractors and distribute the project elements. You will receive compensations, project fees, and any necessary resources from your main contractor, not from their employer. Any complaints and changes from the subcontractor end will need to be reported to the contractor. Therefore, the laws and regulations are primarily based on the general contractor-subcontractor relationship for most projects.
In construction projects, the general contractor will usually allocate tasks like electrical installations, plumbing, landscaping, carpeting, and woodworking aspects to a subcontractor. This portion of the work falls under the agreed and signed contract, which gives you the right to your subcontractor wages. If you do not get paid for the improvements you have made to a property, you can file a mechanic’s lien against that property. This legal claim compensates for the cost of your unpaid work. A mechanic’s lien enforces your subcontractor laws and makes sure that you get paid for your contribution. Once filed against the title of the property you have worked on, it appears as unsettled debt for the property owners to worry about. Improvement and remodeling projects consume labor, materials, and various services from subcontractors. By filing a mechanic’s lien, you can seek compensation for the exact amount that went into the work. It is the fastest way to catch the attention of the required authorities – and the less liquid property is now a financial headache for the owners.
Prompt payment law
In the contractor-subcontractor hierarchy, delayed payments are a common issue. Payments begin to flow down the tiers when the employer pays the main contractor – who in turn pays the subcontractors. If the initial payment to the main contractor is delayed, the subsequent payments are naturally postponed. Some laws like the Prompt Payment Law dictate a specific time period during which an employer must pay the main contractor. The law also states the time limit for the main contractor to pay the subcontractors. These durations may differ slightly between regions, but they serve to streamline the payment process. You can file a Prompt Payment claim if you are not able to recover your cash within the stated time limit. Despite its strict deadlines, the Prompt Payment law can be difficult to enforce in the case of disputes, unforeseen project delays, quality of service, etc.
Other legal claims
Once you sign your construction contracts, the legally binding agreement makes you and your hiring contractor responsible for getting the work done. You have to hold up your end of the bargain, complete the mutually agreed tasks, and get paid for your work. If for any reason, your main contractor fails to meet the contractual terms, then you can file various legal claims to protect your rights – such as your right to receive payments for your work. You can file a Breach of Contract for not getting paid because this is a direct violation of the contract. An Unjust Enrichment claim might help you receive compensation when your contractor steals all the credit for your efforts. If the project started without a construction contract, then filing a Quantum Meruit claim will help you receive just what you have earned. These legal claims allow you to leverage your contribution and earn a fair-and-square alternative during contract breaches.
Subcontractor laws require subcontractors to claim, file, and pay their taxes. These include state, local, federal, social security, and self-employment taxes. The tax liability details are all mentioned on the subcontractor agreement – which also lists the services you will provide for your general contractor. This helps with clarity in information when it comes to auditing stages from the Internal Revenue Service (IRS). So, for example, if the audit reveals that you are carrying out additional duties of an employee rather than just those of a subcontractor, then your general contractor could be penalized for incorrect taxation. If you have earned at least $600 in a year as a subcontractor for your services, you must receive a Form 1099 from your contractor. This tax form helps streamline IRS audits, and the 1099 subcontractor agreement allows you to manage your taxes more transparently. By keeping track of your expenses, license fees, materials cost, etc., you can adhere to the rules of your agreement and report to the IRS as a credible subcontractor.
An important section in a subcontractor agreement is the indemnity clause. It requires the subcontractor to indemnify or compensate the general contractor against future liabilities. Subcontractors often choose to specify that they will only pay for their own actions – not those of the contractor or anyone else involved. The indemnity clause is a good place to highlight this choice. It makes you accountable for your own mistakes and violations. If the contractor is responsible for a breach, then your indemnity clause buffers you against the impact, since you have clearly stated that you are not liable for their actions. Subcontractor laws differ between states and offer rights based on circumstances as well. For example, there could be grey areas where damages occur because of the subcontractor’s work. In such cases, it can be difficult to uphold your side of the argument due to blurred overlaps in where the damage comes from. This is why it is necessary to follow updated subcontractor laws governed by your state and clearly define your clause with your contractor.
Keeping things in black and white
Subcontractor laws are effective tools to leverage your rights in the industry. By clarifying your objectives in the contract, you can build a productive portfolio throughout your construction journey. It is your right to get paid for the improvements you make to any residential or commercial property. Your state’s construction and subcontractor laws will outline your roles, responsibilities, and rights to claim in any project – considering that you have held up your side of the arrangement.
As a subcontractor, you might experience frequent delays in payment, which is why it always helps to learn your payment rights. Various subcontractor laws support and validate your time and efforts that accelerate a construction project towards its final stage. For this reason, picking the right laws that govern your contract is a crucial choice – and yes, we can start by reading line by line to dot the I’s and cross the T’s. It is important to know the dos and don’ts of what you are signing up for. The best way to begin is to keep in touch with your state’s laws and upgrades in every project you accept. This allows you to tackle the hefty paperwork stage more smoothly, so you can finally focus on what you are good at – building and improving!