Providing Contracts to Subcontractors is Now a Legal Requirement

As of the start of January 2025, a new Senate bill (“SB-988”) requires all contractors hiring subcontractors (“Sub(s)”) for jobs $250 or more must provide a written contract to the sub prior to starting a job. 

SB-988 is designed to provide stronger protections to independent or subcontractors, similar to those of a W-2 employee. Using the State’s ABC Test is the best way to find out if you are considered an independent contractor or if your team of workers qualifies under the SB-988 law. 

Prime contractors who plan to hire subcontractors for their projects should pay close attention to these requirements or else they may face some lofty consequences. Just to name a few examples:

1. A sub requests a contract and is denied, they can receive an additional $1,000, on top of other court-awarded damages.
2. If payment isn’t made within the contract’s timeframe, subs can be awarded up to twice the unpaid amount. 
3. In cases where the act is violated, subcontractors may be awarded additional costs of damages equal to the value of the contract or the work performed—whichever is greater.

What Do You Need to Know About SB-988

There are three key components of SB-988 to understand and implement in your business practice to be compliant with the law.  

Written Contracts Are Mandatory

Remember, an invoice is NOT the same as a formal contract. Though your contracts can look how you would like, at the bare minimum, your contracts must include the following:

1. Names and mailing addresses of both the hiring party and the subcontractor.
2. An itemized list of the services to be performed by the subcontractor, the value of the jobs, and payment terms.
3. Payment deadlines or how they will be determined.
4. Deadlines for the subcontractor to submit their service details to ensure timely payment.

Timely Payment Is Crucial

Subcontractors must be paid no later than 30 days after completing their work. In the event that the project owners do not pay the prime contractor for portions of the job for whatever reason, the prime contractor is still obligated to pay their subcontractor(s) in a timely manner. 

If no contract was provided to the subcontractor, the payment is still required within 30 days of the work’s completion.

Retention of Contracts

Any contractor hiring a sub must keep a copy of the contract for at least four years for proper business handling and compliance purposes. 

Conclusion

Ultimately, if you’ve been running your business without using written contracts, now’s the time to start. Not only will it keep you on the right side of the law, but also help protect your business from misunderstandings or costly disputes. 

A clear, written contract lays out all aspects of the job (i.e. expectations, payment terms, and responsibilities). Plus, it shows you’re serious about professionalism and fairness within your business. If you have never used a contract before, your best starting place is to start with the bare information required and add to your contracts over time.