Effective August 1, 2023, contractors will be liable for their subcontractors’ unpaid wages to employees for all new or amended construction contracts on or after that date. Yes, you heard that right. Contractors are now on the hook for the proper payment of wages to their subcontractor’s employees. The amendment can be found here. Contractors cannot require indemnification, release, or transfer this responsibility (in other words, you can’t contract around this statutory liability). Thus, if an employee sues (or the state conducts its own audit/investigation) for improper wages against their employer, the subcontractor, the general contractor may be held jointly and severally liable (also sued for the same amount).
How can contractors ensure their subcontractors are properly paying their employees or otherwise minimize liability? Contractors have the right – and should exercise that right – to receive payroll records and project-related data from subcontractors within 15 days of a request. So long as you can catch any errors early on, they can be corrected prior to accumulation of liability. Further, if the subcontract agreement provides that subcontractors will properly pay their employees or the contract is breached, and the subcontractor does not cure defects (improper payment) the contractor could (following the terms of the subcontract, of course), terminate the subcontract before accumulation a lot of liability (i.e., after six months or a year, if they were paying wages improperly such as prevailing wages, the potential exposure could be very large).
Note, this does NOT apply to contractors who have signed collective bargaining agreements with unions, as those have their own procedures for recovering unpaid wages.