Modern subcontractor management

By Emma Peterson. 

How strong agreements and thorough documentation help you avoid misclassification and immigration issues. 

With tightening work regulations, both related to immigration and general compliance, it is more important than ever that contractors make sure their subcontractor agreements and documents are in order. To learn about the do’s and don’ts of managing subcontracted labor, we hosted Trent Cotney of Adams and Reese for a Roofing Road Trips® episode. 

Trent opened the conversation by talking about why this is such an important topic right now:  

I've seen a complex situation emerge recently where the government may come out for an I-9 audit for your W-2 employees, start digging, see that you’ve got a bunch of 1099 subcontractors and start doing a misclassification analysis. And in that analysis, I’ve seen it determined that there’s a misclassification and that a certain number of 1099s are really employees and you should be keeping I-9s on them. And then you’re facing misclassification issues and immigration fines.  

So, how do you avoid this? It all comes back to making sure you have a strong subcontract agreement that is not for an individual. John elaborated, “Make sure your agreement shows independence and shows that you are paying an entity, not an individual. If you're paying, say, John Smith, $500,000 a year, that's a red flag. But if it's John Smith LLC, there still might be issues, but it’s better.” Additionally, avoiding paying cash and working with entities who are subcontracted to multiple contractors can help avoid misclassification investigations. 

Another thing you should make clear in your agreement with 1099s is their responsibility for immigration compliance. Trent explained, “It should be clear in your subcontractor agreement that the entity is responsible for complying with all immigration regulations, because, under federal immigration law, an employer can only keep I-9s on W-2s. So, you are not responsible for I-9s from your subcontractors. In fact, if you ask for one, you run the risk of a discrimination claim based on national origin.” 

Overall, by keeping your 1099 independence clear in your subcontractor agreement, you will not only help avoid misclassification issues but also protect yourself from compounding immigration fines.  

Listen to the episode or Watch the recording to learn more about working with subcontracted labor.