Understanding 1099, W-2 and subcrews

By Anna Lockhart.  

While utilizing subcrews has challenges and legal rulings to navigate, there are many advantages to hiring these crews for your projects.   

In a recent Read Listen Watch®, “Navigating the Legal Side of Subcrews,” Karen Edwards sat down with Trent Cotney of Adams & Reese and Justin Bedwell of Camouflage Roofing & Construction to discuss the balancing act of hiring and managing subcrews in the industry. As essential as it is for some companies to hire subcrews, it is crucial to manage these relationships and contracts properly to ensure success for all.  

Trent, who has dedicated himself to serving the roofing industry since 1999, is well versed in the importance of properly managing subcontractor relationships. According to Trent, studies have found that roughly 90% of residential businesses are using subcontract labor and over 60% for commercial. With such a large portion of the industry relying on subcontractors, there can be some debate on whether these workers are to have a1099 or W-2 and what that means in the long run.  

When it comes to understanding the latest legal rulings on the factors that determine 1099 eligibility, which were enacted in March 2024, there are a few factors to keep in mind. Trent shared, “They want to look at to what degree is a sub truly independent? Do they operate like a business? Do they have their own website? Do they only work for you, or do they work for other people? Do they wear your gear? All those types of questions are kind of looked at. This law doesn't weigh one factor over another. It looks at all of them together, throws them in a bucket and then decides as to whether you've properly classified a subcontractor or a salesperson as a 1099 rather than a W-2.” 

He then went on to share that when it comes down to it, “Legally speaking, if they only work for you and they don't work for anybody else and you want as little risk as possible, the answer is making every single 1099 you have a W-2. That's the legal answer.” 

In some cases, businesses might find that a mix of 1099s and W-2s are the best answer. Justin elaborated, “Hybrid systems would be where you employ the project manager who may be a bilingual individual and then they go out and they supervise your jobs. Then the subcontracted (1099) labor is the crew itself who's doing the install. So, it's kind of a situation where they work for you, but then the crew may work for them in a different facet.” Trent expanded, “I also see it where you've got a quality control person superintendent that may be W-2, but your crew is 1099. I think that's probably the majority of what I see out there, is some kind of quasi-model where you've got some on W-2, some 1099.” 

While there are legal considerations to be aware of and risks associated with using subcrews, there are also a number of benefits. According to Trent, “Obviously there's less tax and HR responsibilities. Sometimes you can get experts in certain types of things. Or let's say there's some kind of specialty thing that you want to do. You can go out and handpick the crew that you know is going to be able to do this.” 

Justin agrees that some jobs require specialized expertise and selecting a skilled laborer to fill the gap is crucial to the project's success. He shares, “I wouldn't put my roofing crew out there doing garage doors. It doesn't work like that. So we would want to make sure that we're picking people who are licensed and specialized in that area... It's a rare day in the world where you find somebody that can do everything from the ground up efficiently.” 

Read the transcript, Listen to the conversation or Watch the webinar to find out more about their conversation and how to best navigate subcontracting relationships.