How Should I Pay Subcontractors?

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A subcontractor is a worker who completes a job at your direction as the contractor. Just as you would pay an employee, you must pay your subcontractors as promptly as possible. Your payment policy when it comes to subcontractors may have a significant effect on your ability to secure these workers on demand in the future.

  • Set out a written agreement with the subcontractor before you begin work. Detail the job requirements, client needs and deadline so that he fully understand what the project entails.

  • Include the payment due upon completion as agreed between you and the subcontractor in the agreement. Confirm that you will submit payment upon receipt of payment from the client. Keep a copy of the contract for your records.

  • Secure a taxpayer identification number from the subcontractor. You need this information for tax reporting purposes. If you pay the subcontractor more than $600 during the year, you must file a 1099 form outlining the payment to the Internal Revenue Service.

  • Request that each subcontractor send you an itemized invoice for services completed to formalize the payment process.

  • Forward payment to each subcontractor via check, per the invoice, so that you have a paper record of your transactions with the contracted workers.

Tips & Warnings

  • Get the counsel of a lawyer before drawing up an official agreement with a subcontractor.
  • In some cases, a subcontractor may be able to file a lien against the client's property if you do not pay him as agreed. To avoid a potential conflict with the property owner, make sure you pay all subcontractors in full.

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