Must Know Subcontractor Rules and Regulations

Must Know Subcontractor Rules and Regulations

Next Insurance Staff
By Next Insurance Staff
Jan 8, 2020
6 min read

Before you agree to perform work as a subcontractor, it's wise to know all about the arena you're entering, especially if it's your first go-round. 

As with general contractors (GC), you have subcontractor payment rights and protections under the law and while you hope to avoid any conflict, having a solid understanding of the contract will get you a leg up if problems do arise. And it's not just potential disagreements you'll want to resolve. It's also knowing how work should flow and outlining what's expected from you and the firm that hires you. 

When it comes to pertinent subcontractor laws, seeking legal advice is the best way to ensure your rights are protected and all subcontractor rules and regulations are reflected in writing. Since you likely want to focus on doing what you do best, it's highly recommended to enlist the help of an attorney to address the red tape. With contract language being complex and confusing, you won't want to attempt to decipher all the details on your own. 

Operational Challenges Subcontractors Face 

Among the many challenges you'll face working as a subcontractor, there are some issues that are more prevalent than others, particularly with regard to financial and operational obstacles. 

Cash flow: Thsubcontractor payment rights will reflect the amount of time in which you should expect to get paid for your services. In the meantime, you're putting up significant amounts of money to acquire supplies and materials to complete the project. If payments aren't flowing down from the GC per the time outlined in the legal agreement, that delay could affect your ability to finish phases of the job as well as the end of the project itself. Couple operational issues with the possibility that you might not meet payroll obligations and you have a sensitive labor issue to add to the mix. 

Scheduling: If communications break down between the GC and your subcontracting division, it could cause jobs not to be completed in a timely manner. Without clearly defined timelines, it will be difficult to know where and when to allocate labor as necessary. When delays occur for the client, it will result in dissatisfaction at the top, which you may not be responsible for or be able to control. If these snags occur for an established customer, you could face losing work from which you derive a continuous revenue stream. 

Labor market: If you don't have steady work for employees or are having problems making payroll, you could experience an exodus of skilled labor. With unemployment rates at all-time lows in 2020, the chance that you could quickly replace valuable employees is slim. Competitors face the same labor market challenges but, if given the opportunity, won't hesitate to hire carpenters or plumbers that have left your organization. 

What Are Your Contractual Rights? 

On the legal side of things, it's important to be able to dissect the contracting agreement and form a solid understanding of key principles surrounding your legal subcontractor rights. Here are a few you'll want to focus on:

Control of your work: In the scope of subcontractor rules and regulations, you have the right to determine how and when the job will get done. As long as you adhere to the scope of work outlined in the subcontractor agreement, you have flexibility with respect to hours of operation and what resources you'll commit on a day-to-day basis. Naturally, you'll want to adhere to the milestones set forth in the contract so the job progresses on time, but it's ultimately up to you to decide the optimal approach.

Labor laws: If you're navigating subcontractor laws, you technically have to answer to the GC but it's not the same as an employer-employee relationship. Thus, you won't realize the protections that thDepartment of Labor (DOL) affords to you or your employees. You may find cost overruns require you to work long hours and perhaps even take a loss. No DOL wage protections or hourly workweek restrictions apply, so you'll need to plan properly to make your time worthwhile. 

Contract terms: A well-written contract can control your ability to earn your due, so be sure, at a minimum, it outlines key components. In light of subcontractor rights, the agreement must include payment terms so you know how much and when you'll be compensated. If one side or the other breaks the contract, you'll need to know rights and duties in the wake of the breach. The scope of work defines exactly what tasks you're responsible for and at what intervals you're expected to complete them. 

Original contract: Contracts written between the GC and the hiring party affect subcontractors to the extent that the document contains a flow-through clause. Any conditions required in the general contract would apply to subcontractor rights and as such, it's a good idea for subs to review the original agreement, if possible. Without close inspection, you could be unaware of stipulations that prevent you from getting paid for your work, and that could be a violation of your subcontractor payment rights. 

Key responsibilities: Benefits and contractors insurance won't trickle down from the GC level or above. You'll need to be sure you have the proper general liability insurance policies in place and you'll be required to show proof of that protection. How you want to handle employee salary and benefits is up to you but to secure work with the GC, insurance will be mandatory. You'll be asked for certificates reflecting the amount of liability coverage you carry.

Find Peace of Mind with Business Insurance

If you hold up your end of the bargain when operating within subcontractor laws, it will lessen the odds that you encounter any legal or financial roadblocks. However, whatever can happen often will. 

So, a deep understanding of your legal rights and protections is necessary before you sign on and if you should encounter payment disputes that skirt subcontractor rules and regulations. For your own peace of mind in any capacity, you'll want to maintain a relationship with an attorney and execute a business insurance plan to insulate you from a crippling loss. Next Insurance offers small business solid strategies to protect their physical and financial assets, come what may. 

Must Know Subcontractor Rules and Regulations


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