Contractor's BS could leave you very exposed

[Knowle of 4U]

I recently had a client who is a contractor that has his customers pay for the materials to his licensed company, but has them pay for the labor separately to him personally. Then he pays the guys on those jobs in cash from that second check. Sounds cool, huh? Screw the government, get a few dollars in savings, right? NOT SO FAST!

Before you let any contractor pull this crap with you, you should know a few important areas where your arse will be exposed in potentially costly ways.

1. If the labor is not being paid through the licensed company, then the job he does for you isn't going to be covered by the licensing requirements.

2. If the labor is not being paid to and through the licensed company, then the "insured" status of that contractor is null and void. The workmen's comp, as well as the general liability coverage for that contractor only cover transactions that go through the company. So that means if any of the workers are injured or hurt on your project, your homeowner's coverage will have to pay for it.

3. If the labor is not being paid to the company, and you get audited, the amount you paid is subject to at least 1099 reporting, and potentially you will have to pay full FICA taxes as well, plus of course penalty for not filing the 1099 or the 941 deposits or the w-2's, and the interest for all of the aforementioned.

I explained all this to my client and he still refused to follow the laws and rules, so I dropped him in a flash. I don't need my other clients to end up subjected to an audit because my name is attached to reports coming from a fraudulent contractor. I also turned him into 3 state agencies and the IRS. However, it really concerns me that people who think the "great deal" they get for agreeing to participate in this BS are really exposing themselves to some serious financial risks. Also after listening to this jerk, I've come to realize that he would've given the same "deal" even if those customers had not agreed to paying his labor separately. So don't get hung by this BS, don't believe that it is the only way you can get a good deal, and don't embrace the risks that will fall on you if you do accept this crap.

Okay, I feel like I've done my best to educate the few folks that come here to post and to read. Buyer beware, and be smart!

[GUS]

A home is about the most expensive purchase the average person makes. It is foolish to trust a real estate person, a contractor, a sub-contractor, a surveyor, a title search company etc. to advise one on any home purchase or sales contract. A lawyer can and will protect a buyer and a huge amount of money and possible heartache will be assuaged. Legal costs on reading the contract and the buyer's home closing runs around $250-$350, a small price for what could end up costing the buyer tens of thousands of dollars.

[Knowle of 4U]

A home is about the most expensive purchase the average person makes. It is foolish to trust a real estate person, a contractor, a sub-contractor, a surveyor, a title search company etc. to advise one on any home purchase or sales contract. A lawyer can and will protect a buyer and a huge amount of money and possible heartache will be assuaged. Legal costs on reading the contract and the buyer's home closing runs around $250-$350, a small price for what could end up costing the buyer tens of thousands of dollars.

You also have a very valid point, but I doubt that a lawyer would be necessary to oversee the installation of replacement windows. Or to install siding or a backyard barn. These are the types of things that seem to have the type of contractor that pulls the crap I've mentioned above.

[GUS]

My next door neighbors paid their home contractor for supplies in advance and when all was said and done a number of sub-contractors came after them for payment for flooring, windows, doors and cabinets. They wept as they shelled out another $10,000+, court ordered.

[Knowle of 4U]

My next door neighbors paid their home contractor for supplies in advance and when all was said and done a number of sub-contractors came after them for payment for flooring, windows, doors and cabinets. They wept as they shelled out another $10,000+, court ordered.

Oh, that's bad. Yep I see your point then. People need to not pay until the contractor has signed contracts (hence the need for a lawyer) indicating his responsibility to pay or his completion of paying his subcontractors and suppliers. I always insist also on retaining 10% till 30 days after completion of the work so I have an incentive for them to return to fix anything that becomes apparent during that first month, and I inspect and utilize heavily during that month to ensure I will find anything done wrong.

[GUS]

That 10% idea is a splendid one!