A Bit of Backstory
Using subcontractors has been standard practice for decades in the construction industry. But there’s been a strong push in recent years to eliminate 1099 contractors, regardless of how many or few hours they work, based on the idea that they’re unfairly losing out on benefits, overtime pay, worker’s compensation and more. And if any of your subcontractors decide that they actually should have been classified as W2 employees, and a judge agrees, you could have to fork over back payroll taxes, worker’s comp claims, retirement benefits, overtime pay, and attorney’s fees pronto — plus fines on top of all that.
D.S. Berenson, managing partner of the Berenson law firm LLP, which has an exclusive practice in remodeling and home improvement law and represents the majority of the top 500 remodelers nationwide, calls this a “nuclear risk,” saying: “One guy and you could easily be facing a $100,000 bill right away. If you get hit with this, it’s nuclear.”
He advocates creating a “brick wall of protection.” Some elements of that brick wall relate to other aspects of a construction business, such as adding contingency clauses for delays and price changes in client contracts, and following lead-paint laws to the letter. But here we’ll discuss only those related to subcontractors. Now on to the five dos and don’ts.