Written for general contractors, remodelers, framers and carpenters, roofers, drywall, masonry and concrete contractors, and kitchen and bath installers in the US, from one-truck outfits to small GCs.
The short version
- Collect a W-9 before the first payment.Check the name and taxpayer ID. With no ID, or one the IRS flags as incorrect, backup withholding applies.
- Get a current COI before they start.Certificate of insurance: general liability with your additional insured endorsement, plus workers' comp. Uninsured subs' pay is usually charged premium at your comp audit.
- Take advice if a sub works like crew.A sub with no license, or who works like your own crew, may really be an employee. Get an employment attorney's advice first.
Paying a framing or drywall crew as 1099 subs looks simpler than payroll until a comp audit, a state agency or an injured worker tests it. Construction has its own traps: in California an unlicensed sub doing licensed work is presumed to be an employee, and comp carriers charge you premium for subs who have no coverage of their own.
California: no license, presumed employee
A crew doing work that needs a CSLB license, without holding one, is presumed to be employees and fails the ABC test. Expect back payroll taxes, overtime, comp premium, and penalties of $5,000 to $15,000 per willful violation. A license alone does not make someone an independent contractor: move the crew to payroll unless counsel confirms that every condition of the construction-subcontractor exception is met. As of Oct 2026.
Cal. Lab. Code secs. 2750.5, 226.8 and 2781
The paperwork for every sub
- A W-9 before the first payment.Check the name and taxpayer identification number. If the sub gives no TIN, or one the IRS flags as incorrect, withhold 24% backup withholding from the payments, deposit it and report it on Form 945. As of Oct 2026.
- A certificate of insurance before they start.Showing general liability with your required additional insured endorsement, and workers' comp. Calendar the expiry dates. At the comp carrier's year-end audit, payments to uninsured subs are usually added to your own payroll and charged premium.
- A 1099-NEC by January 31.For payments of $2,000 or more made from January 1, 2026 (it was $600 through 2025). Payments to corporations are generally exempt, but not payments to attorneys, and card or payment-app payments are reported by the processor on Form 1099-K, not by you. As of Oct 2026.
| Paid to the sub | $30,400 |
| Backup withholding at 24%, deposited and reported on Form 945 | $9,600 |
| Future reportable payments to the sub | $40,000 |
Withhold from future payments only. If $40,000 has already been paid without withholding, $9,600 is not available to deduct now: have a CPA work out when withholding became mandatory, any payer liability and the correction.
Workers' comp by state
Workers' comp is required for employees in California, New York and Florida, and in Florida construction employers need it from 1 employee; going without brings a stop-work order and a penalty of twice the premium that should have been paid. It is optional in Texas for private work. In California, licensees in C-39 roofing, C-8 concrete, C-20 HVAC, C-22 asbestos abatement and D-49 tree service must carry it even with no employees, and every active licensee will from January 1, 2028. As of Oct 2026.
Fla. Stat. secs. 440.02 and 440.107(7); Cal. Bus. and Prof. Code sec. 7125
Florida construction employers need comp with 1 employee. The penalty is twice the premium that should have been paid, plus a stop-work order.
Once they are employees
- Overtime is 1.5 times the regular rate after 40 hours in a week; in California also after 8 hours in a day, and double time after 12. A day rate with no overtime for a 50-hour week is a trap.
- Travel between job sites during the day is paid time, and per diem or truck allowances that are really wages are wages.
- Complete Form I-9 Section 2 within 3 business days of the first day of work.
- On federal and federally funded jobs over $2,000, Davis-Bacon prevailing wage applies, with weekly certified payrolls. As of Oct 2026.
- In California, final pay is due immediately on discharge.
Do not move people between sub and payroll status on your own. Have an employment attorney advise before you convert subs to employees, or the reverse.
Asked in Greymill
Going without brings a stop-work order and a penalty of twice the premium you should have paid. Get covered now.
Before you pay the framers again: get a W-9. With no taxpayer ID, withhold 24% backup withholding from future payments (As of Oct 2026), deposit it and report it on Form 945.
For past payments, ask a CPA about any liability.
Before they work again: get a certificate of insurance (COI) showing general liability and workers' comp. If they are uninsured, your year-end comp audit usually adds their pay to your payroll and charges premium on it.
One more check: if they work like your own crew, they may really be employees. Get an employment attorney's advice before changing their status.
Want a W-9 and COI request to send the crew?
Ask it about your own business
Paste this into Greymill with your own figures, and Staff & HR works it through for your business.
I run a construction or building business in [state], in the US. I pay [number] people as subs. For each: their trade, whether they hold a license and insurance, whether they work for others, who sets their hours and supplies the tools, and what I paid them this year [details]. Tell me which ones look like employees under my state's rules, what paperwork I am missing, and the steps and likely costs to put it right.
More for construction and building in the US
- Pricing labor when the wage is only part of what a carpenter costs meWork out the burdened cost of each productive hour, then price for margin, not markup.Read the lesson
- Profitable on paper, but payroll is due before the pay app clearsPayroll goes out weekly while pay apps take 30 to 60 days and retainage waits for completion. A weekly forecast and an honest WIP schedule keep the gap in view.Read the lesson
- Not knowing who owes sales tax on the materials and labor in my contractsWhether you pay tax on materials or collect it from the customer depends on the state, the type of work and how the contract is written.Read the lesson
- Starting a job without the license, permits and notices my state requiresLicensing is set by the state and the city, home improvement contracts carry their own notices, and OSHA's construction rules apply on every site.Read the lesson
- Signing a GC's subcontract without knowing which clauses my state will enforcePay-if-paid, lien waivers, indemnity, retainage and venue clauses work differently in each state. Know which to strike before you sign.Read the lesson
- Getting prequalified with GCs and public owners instead of chasing platform leadsHomeowners check reviews and your license, GCs check your financials, bonding and safety record, and public owners check registration and bonds.Read the lesson
- The GC is late paying and I am not sure I still have lien rightsLien rights can be lost in the first weeks of a job with a missed preliminary notice, so check your notices and deadlines before you chase the money.Read the lesson
Open the interactive lesson · Every construction and building lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- 29 U.S.C. secs. 206, 207 (People: wages, prevailing wage, comp and I-9)
- Lab. Code sec. 510 (People: wages, prevailing wage, comp and I-9)
- 40 U.S.C. sec. 3142; 29 C.F.R. sec. 5.5(a)(3) (People: wages, prevailing wage, comp and I-9)
- sec. 1725.5 (People: wages, prevailing wage, comp and I-9)
- Gov't Code ch. 2258; N.Y. Lab. Law sec. 220 (People: wages, prevailing wage, comp and I-9)
- Bus. and Prof. Code sec.7125; CSLB Bulletin 22-12 (Oct.11,2022), four additional classifications from Jan.1,2023 and pre-existing C-39 duty (People: wages, prevailing wage, comp and I-9)
- What is new for 2026 (Subcontractor paperwork: 1099-NEC, W-9 and backup withholding)
- 26 C.F.R. sec. 301.6011-2 (Subcontractor paperwork: 1099-NEC, W-9 and backup withholding)
- IRC sec. 3406; irs.gov backup withholding page (Subcontractor paperwork: 1099-NEC, W-9 and backup withholding)
- Reporting thresholds (Subcontractor paperwork: 1099-NEC, W-9 and backup withholding)
- IRS Backup Withholding, "What is backup withholding?" and payments subject to withholding; Instructions for Form 945, backup withholding (Subcontractor paperwork: 1099-NEC, W-9 and backup withholding)
- Cal. Lab. Code secs.2750.5, 226.8, 2781(a) to (h) (Hard cases: tax, people and site)
- secs. 440.02, 440.107(7) (Hard cases: tax, people and site)
- sec. 1926.652; OSHA memo May 21, 2026 (Hard cases: tax, people and site)
- 34 TAC sec. 3.357(b)(2) (Hard cases: tax, people and site)
- IRS FS-2026-13 Topic A Q1 to Q2, Topic C Q6 and Topic E Q10 (Hard cases: tax, people and site)
- Bus. and Prof. Code sec.7048(a) to (c) (Pitfalls that embarrass the product)
- Bus. and Com. Code ch. 56 (Pitfalls that embarrass the product)
- Termination table, Q1 and Q7; IRC sec.25D(e)(8) (Pitfalls that embarrass the product)
- Notice 2026-11 secs.2.02(1), 3.03, 3.06 and 3.07 (Pitfalls that embarrass the product)