Most roofing companies pay subcontractor crews without a formal system — a check cut when the job is done, a handshake on the rate, and a scramble at year-end to figure out who owes what 1099. That works until it doesn't. Here's how to structure 1099 subcontractor payments correctly: the compliance requirements, how to set rates, and how to track payments so your job costing actually reflects real labor costs.
Before the First Payment: What You Need From Every Sub
Collect these before you cut the first check — not after the job:
- W-9 form: The sub's legal name, EIN or SSN, and address. This is what you use to file their 1099-NEC at year end. Never pay a sub without a W-9 on file — if you can't get one, you're required to withhold 24% backup withholding from payments.
- Certificate of General Liability Insurance: With your company listed as additional insured. If the sub doesn't carry their own GL, your policy is the backstop for their mistakes — and your insurer may deny the claim.
- Certificate of Workers' Compensation Insurance: If the sub has employees (even just 1-2 workers), they need workers' comp in most states. Without it, a worker injured on your job may be covered under your policy as a statutory employee — an expensive surprise.
- Subcontract agreement: A written agreement describing the scope, payment terms, and the independent contractor relationship. This isn't just legal protection — it eliminates disputes about what was agreed.
How to Structure Subcontractor Payment Rates
There are three common rate structures for roofing subcontractors:
Per Square (Most Common)
The sub is paid a fixed amount per square of roofing installed. Typical ranges:
- Standard residential (4/12–6/12 pitch): $60–$90/square depending on market and complexity
- Steep residential (7/12–9/12): $80–$110/square (slower, more labor-intensive)
- Very steep (10/12+): $100–$150+/square (safety equipment, slower pace)
- Tear-off included: add $15–$30/square for including tear-off in the rate
Per-square rates put the production risk on the sub — they get paid for output, not hours. Fast crews earn more; slow crews earn less for the same work. This aligns incentives well when the sub is a true independent crew.
Per Job
You negotiate a flat price for the entire job with the sub. They scope the labor themselves and agree to a number. This works best when both parties know the job well (square footage, complexity, inclusions). It requires the sub to own their cost estimation — a sub who underestimates on a per-job contract eats the difference.
Per Day / Per Hour
Day rates or hourly rates are the most employee-like arrangement and the most likely to trigger classification scrutiny. Use these only for short-duration work (single day specialty tasks) or when the per-square model genuinely doesn't apply. Avoid using day rates as a regular crew payment structure — it looks like employment.
What to Include in the Subcontract
A roofing subcontract doesn't need to be a 20-page legal document, but it should cover:
- Job address and description of work
- Payment rate (per square, per job, etc.) and total amount
- What materials are included in the rate and what you (the GC) supply
- Payment timing (paid upon completion? Net 7? Inspect before payment?)
- Who is responsible for cleanup and debris removal
- Warranty terms (are they standing behind their labor?)
- Independent contractor acknowledgment — the sub agrees they are not your employee
- Insurance requirements (they confirm they have the coverage described above)
Paying Subs: Timing and Method
When to pay is as important as how much:
- Inspect before you pay: Walk the completed job (or have your PM do it) before cutting the check. Quality issues are much harder to address after the check is cashed.
- Use check or ACH, not cash: Cash payments are difficult to document and create record-keeping problems at 1099 time. Every sub payment should have a clear paper trail — check number, date, amount, job address.
- Keep a payment log: Track every payment to every sub by date, job, amount, and cumulative YTD total. You need to know when a sub hits the $600 threshold for 1099 filing, and you need accurate numbers for job costing.
1099-NEC Filing Requirements
At year end, you must file a 1099-NEC for every sub you paid $600 or more in the calendar year. The mechanics:
- Deadline: January 31 — both to the IRS and to the recipient. This is a hard deadline with per-form penalties for late filing ($50-$110 per form if filed within 30 days late, up to $290 per form for later filings).
- What you need: The sub's legal name, EIN or SSN (from the W-9 you collected), address, and total amount paid for the year.
- How to file: Small businesses typically use accounting software (QuickBooks, Xero) or a payroll service that handles 1099 filing. You can also file directly through the IRS FIRE system.
- State requirements: Most states also require state 1099 filing. Confirm your state's requirements — some require a separate state form; others accept the federal copy.
Tracking Sub Payments for Job Costing
This is where most roofing companies drop the ball. They pay the sub, cut the check, and the cost disappears into a general expense account — invisible to the job's profitability report.
For accurate job costing, every sub payment needs to be associated with a specific job in your system. When the sub is paid for the install at 123 Main Street, that cost needs to appear on the 123 Main Street job record as a labor cost — alongside the material cost for that job and the revenue from the contract.
When you can see, per job, what the sub labor cost was vs. what you estimated, you can identify margin leaks. A job you estimated at $12,000 that produced $11,200 in revenue and cost $8,500 in materials and labor leaves $2,700 — but if you didn't track the sub payment to the job, you see $3,200 on paper. At scale, that difference compounds into significant misreporting of true margins.
A Minimal Compliant System
If you're running subcontractors without a formal system today, here's the minimum you need:
- W-9 on file for every sub you pay
- Insurance certificates updated at least annually
- Written agreement (even a one-page summary) per job
- Every payment logged with job address, sub name, amount, and date
- 1099-NEC filed by January 31 for anyone over $600
- Sub payments recorded against specific job records in your job costing
This isn't complicated — it's discipline. The companies that do this consistently never have a year-end scramble, never miss 1099s, and always know their real margins.
Further Reading
- Roofing Job Costing: Know Your Profit Before the Job Is Done — How sub labor payments fit into your full job cost picture
- Roofing Crew Pay Structures — Per square vs. hourly vs. hybrid: choosing the right structure for sub and W2 crews
- W2 vs. 1099 for Storm Restoration Crews — Classification risks, state-specific rules, and documentation requirements
- Ketterly 1099 Crew Management — Assign jobs, track sub costs per job, and pay subcontractors directly through Ketterly