California general contractors and subcontractors, be warned: conducting business as usual may get a little thornier for you come January 1, 2018.
If you hadn’t heard, the California state legislature and Governor Jerry Brown made Assembly Bill 1701 a law in October. It takes effect on the first day of next year, to many mixed feelings in the construction industry.
A.B. 1701 dictates that going forward, general contractors (or “direct contractors”) will be held liable for wages not paid to their subcontractors’ employees. Bummer for general contractors, but that is what some unions—including the California Conference of Carpenters—believed was necessary to protect workers against subs who skip town or file bankruptcy before paying wages or benefits.
The bill attempts to make GCs paying back subs’ workers a last resort by allowing them to demand financial statements and proof of wage payment from subs—and to withhold payment to subs until they receive such documentation.
Another mound of paperwork
Some say the bill was intended to protect workers from bad subs, and even to protect subs from bad contractors. But much of the media, contractors, and even employment lawyers predict it will make life more difficult for everyone.
Contractors will have to assess how much time they want to spend wrangling payroll records and other documents from their subs—though it will certainly be in their best interest to do so.
Possible financial fallout
Contractors have the freedom to pay differently under the new law, so they may decide to pay for materials up front and labor later on. And then they may withhold the labor portion of their payment until the subs have paid their people.
This could be very tricky for subcontractors whose margins are thin, and who generally pay their workers with payment from the contractor, job by job.
Others say it will cause GCs to have to clean up for certain “unreliable” subs by paying double for labor.
How you can prepare
One thing is for certain: subcontractors will now have to be prepared to provide more paperwork for GCs. You’ll also need to maintain a financial cushion, if possible, that allows you to pay before you get paid.
For those who have always followed the rules, this probably seems overwhelming and unnecessary. So how do you minimize the impact on your business?
And who has time, as a subcontractor, to prepare flawless payment reports that will prove to GCs that you’re paying wages properly as you go?
One thing that would remove some of the pressure and stress: digital time tracking records for you and your employees.
Reliable digital records take a huge burden off the shoulders of specialty contractors of all sizes, whether you have have a workforce of two or eighty-two.
They free you and your workforce from filling out and gathering paper time cards and accurately entering the data. In addition, record-keeping for compliance with federal and state laws (and now for sharing with GCs) becomes air-tight and effortless.
AB 1701 makes it more likely, and more critical to your success, that you’ll have to produce your payroll records quickly. It might make a difference in winning or losing bids, and remaining a viable business in the eyes of the GCs you depend upon for work.