To pay a subcontractor by check, get a completed W-9 and a written invoice first, make the check out to the exact name on the W-9, put the job name and invoice number on the memo line, and record the check number against the job before you hand it over. Do that every time and you will always know who was paid what, for which job, and when.
What should you have before you pay a subcontractor?
Paying a sub is easy. Paying one without the paperwork is what causes trouble months later, when someone asks what a $4,200.00 check was for. Before the first payment to any new sub, collect the following.
- A completed Form W-9. It gives you the legal name, business name, address and taxpayer ID you will need if you have to report the payments. Collect it before the first check, not in January.
- A written scope and price. A one-page agreement, a signed quote or an accepted estimate is enough for a small job. It should name the job, the work and the price or rate.
- An invoice for each payment. Even a simple invoice with a number, a date, the job and the amount gives you something to match the check against.
- Proof of insurance, if your contracts require it. Many general contractors and owners ask for it. Ask your insurance agent what you should be collecting.
Lien waivers and releases are a legal topic that varies by state and by contract. If your contract or your state calls for them, a construction attorney can tell you when to collect them relative to each payment, and you can then note the waiver on the invoice next to the check number.
How do you pay a subcontractor by check, step by step?
- Confirm the work. Walk the job or check the progress against the agreement before you approve the invoice.
- Match the invoice to the agreement: same job name, same rate, same total, with prior payments subtracted.
- Look up the payee's legal name on the W-9. Use that name on the "Pay to the order of" line.
- Enter the amount in numbers and let your software or your own careful writing produce the matching amount in words. A $3,850.00 payment reads Three thousand eight hundred fifty and 00/100.
- Write the memo: job name, what the payment covers and the invoice number, for example "Maple St kitchen - rough electrical - inv 2207".
- Sign the check. Whoever signs should be the person authorized on the bank account, and ideally not the same person who approved the invoice if you have someone else who can.
- Record the check number, date, payee, amount and job in your register or your books the same day.
- Hand it over in person and ask for a signature on the invoice, or mail it and note the mailing date.
Most contractors skip step 7 when they are busy, then try to rebuild it at tax time from bank statements that only show a check number and an amount. The guide on tracking subcontractor payments for tax time covers how to avoid that.
Who do you make the check out to?
Use the name on the W-9. If the sub is a sole proprietor who works under a trade name, the W-9 usually shows both a personal name and a business name. Ask which one they want on the check, and make sure that name matches what they will be able to deposit under. If the sub is an LLC or a corporation, make it out to the company, never to the owner personally unless the owner tells you to and the paperwork agrees.
Never write a check to "cash" for a sub, and never to the name of a person who does not appear on your paperwork. If you need a refresher on formatting a business payee, see how to write a check to a business.
What belongs on the memo line and the check stub?
The memo line is small, so use a pattern every time. A consistent memo makes the bank statement readable and makes searching later painless. The stub, which is the voucher portion of a 3-to-a-page check, has room for more detail and is the sub's remittance record.
| Where | What to put | Example |
|---|---|---|
| Memo line | Job, phase, invoice number | Oak Ave addition - framing - inv 118 |
| Check stub | Invoice number, invoice date and amount for each line | Inv 118, rough framing, $6,400.00 |
| Your register | Check number, date, payee, amount, job, status | #2041, Mar 14, Reyes Framing LLC, $6,400.00, Oak Ave |
| Invoice copy | Check number and date paid, written on it | Paid #2041 3/14 |
For more on memo habits, read what the memo line on a check is for.
How do you handle deposits, progress payments and holdbacks?
Most subcontract work is paid in stages rather than in one lump sum. The agreement should say when each payment is due and what triggers it. A common pattern is a deposit, one or more progress payments and a final payment after the work is accepted. Some contracts also hold back a percentage until the job is finished; that is called retainage, and whether it applies to you depends entirely on your contract.
Here is an example with made-up figures. You hire an electrician for a $12,000.00 job. The agreement calls for $3,600.00 at rough-in, $5,400.00 after the inspection passes and $3,000.00 at completion. That is three invoices, three checks, three register entries, and each memo says which stage it paid. Add the three checks and you get $12,000.00, which matches the agreement.
Write the running balance on each invoice: contract total, paid to date, this payment, remaining. It takes ten seconds and settles most disputes before they begin.
What about crews and day workers?
Whether someone is a subcontractor or an employee is not decided by what you call them. It depends on the working relationship, and the rules are set by tax and labor authorities. If you are paying individuals who work only for you, on your schedule, with your tools, talk to your accountant before you treat them as subs. For employees, your accountant or payroll provider calculates the net pay and handles withholding and filings. You then print the paycheck with the amount they give you; see how to print payroll checks for the general process.
Common mistakes when paying subs by check
- Paying before collecting a W-9, then chasing the sub for it when the year ends.
- Putting only "labor" or "job" on the memo, so nobody can tell which job the money belongs to.
- Writing one check for several jobs with no breakdown. Split them, or list each job and amount on the stub.
- Making the check out to a trade name that does not match the sub's bank account, which causes deposit delays.
- Paying an invoice twice because the first check was not recorded. A register entry on the day of payment prevents this.
- Leaving blank checks unlocked in the truck or the job trailer. Blank stock is a fraud risk; keep it in a locked place.
Next steps
Pick one routine and use it for every sub: W-9 on file, invoice approved, check made out to the W-9 name, memo with job and invoice, register entry the same day. If you want more detail on the contractor-specific side, see how to print contractor checks, and for supplier invoices see how to pay material suppliers by check. The page on check printing for contractors shows how this routine looks in practice.
Check Writer 123 can print the memo, saved subcontractor names and invoice lines on the stub, and its register report can be downloaded as a CSV so you can total payments by payee. Every plan starts with a 14-day free trial, and no card is needed.