Subcontractors

Usually, anything that subcontractors would be liable for, general contractors may also be liable for (with the caveat that if the contractor has to pay for damages, the subcontractor who is legally responsible will often reimburse the general contractor).

A contractor who has been paid for a project and refuses to pay a subcontractor shall as a penalty, pay 2 percent of the amount due per month every month that the payment is not made. In addition, the prevailing party shall be entitled to his attorney's fees and costs.

Under this doctrine, the subcontractor or supplier can sue the property owner for payment if the owner has not paid the general contractor for the particular work or materials. The theory is that the owner would be "unjustly enriched" if he were allowed to reap the benefit of the work or materials without paying.

The law allows the government, contractors, and subcontractors to include a retainage provision in the contract that retains a specific amount from progress payments. However, the party must pay retainage within 30 days of final acceptance.

The owner who disregards the terms of a contract by paying a subcontractor directly (leapfrogging) does so at its peril; the owner risks having to also pay the contractor for the same work or overpayment.Leapfrogging may abridge another subcontractor's mechanics lien rights or rights under a trust fund statute.

You can withhold payments from a subcontractor if he does not perform the job in the time frame specified by contract.You cannot withhold payment from a subcontractor for work performed, but you can withhold time penalties and the cost of your damages until the issue is resolved in court.

The payment bond is backed by a surety company, and protects the owner and subcontractors. If a general contractor refuses to pay his subcontractors, they can make a claim against the payment bond. The surety company will pay out the subcontractors for at least part of their money and take the contractor to court.

Determine How to Pay Contractors. Unlike with employees, you don't typically pay contractors a salary. Collect W-9 Form. Set Up a Contractor in the Payroll System. Process Payment to Independent Contractor. Send Form 1099-MISC.