If you sub out any part of your work — and most trades do — a one-page handshake is a liability. A real subcontractor agreement protects you three ways: it defines exactly what the sub is responsible for, it documents that they’re an independent business (not your employee), and it makes their insurance and lien waivers a condition of getting paid.

What a subcontractor agreement must include

• Parties + project — your business, the sub’s business, the job address, the prime contract reference.
• Scope of work — specific and bounded. “Rough-in plumbing per plan sheet P-1,” not “plumbing.”
• Price + payment schedule — fixed or unit price, and when they get paid (often pay-when-paid, tied to your draw).
• Insurance requirement — the sub carries their own general liability and workers’ comp, and names you as additional insured on a certificate of insurance (COI).
• Lien waiver — a signed lien waiver with each payment, so the sub can’t lien the owner’s property after you’ve paid them.
• Indemnification — the sub is responsible for damage or injury caused by their work.
• Independent-contractor language — confirms they control their own means, methods, tools, and schedule.

1099 vs W-2: the classification test that matters

The IRS looks at behavioral control, financial control, and the relationship (see IRS Pub 15-A and the common-law factors). A true 1099 sub uses their own tools, sets their own hours, can work for others, is paid by the job, and can profit or lose on it. If you set their hours, supply their tools, supervise the how, and pay them hourly week after week, the IRS may call them a W-2 employee no matter what the contract says.

Why it matters in real dollars: misclassification can mean back payroll taxes, the employer’s share of FICA (7.65%), unpaid workers’ comp premiums, and penalties. On a crew of three “subs” paid $60,000 each for a year, a reclassification can run into five figures fast. The agreement’s independent-contractor language helps — but only if the day-to-day relationship actually matches it.

Pay-when-paid, COIs, and lien waivers

Three clauses do the heavy lifting. Pay-when-paid ties the sub’s payment to your receiving the owner’s draw, so you’re not floating their labor. The COI requirement means a sub’s accident is their insurer’s problem, not yours — collect the certificate before they start, not after. And a lien waiver with each payment closes the loop: the owner stays protected, which keeps you in good standing on the prime contract. Price the subbed work into your estimate and capture any added scope with a change order.

Frequently asked questions