Subcontracted Electricians working under the Contracted Electrician in Texas

[CEMatt]

We are an electrical contractor in Texas and primarily work on new custom builds.We have been running into a lot of other electrical contractors that outsource to subcontractors that work as 1099's with no insurance no workers compensation to keep the cost low. After the house is wired the licensed electrician that is contracted comes in to fix all of the issues and completes the remaining work.

My questions are- Do any of you see this in your area? Who are the hiring to wire the house?

I know is seems very shady to me but it apparently is very common in Texas, especially with the production homes. The builders gauge the success of each project on whether or not is passes inspection and whether or not everything works in the end and that's it. We try to sell against this but at the end of the day many of the builders don't know or simply don't care. We are having a hard time competing with their price and many times they are 30% less than our total bid price. I assume most don't pay payroll taxes and they do not have insurance or W2 employees. The bulk of the work is done under a subcontractor of the subcontractor then they bring in the W2 employees to clean up the mess and fix all of the issues after.

 

[petersonra]

The builders gauge the success of each project on whether or not is passes inspection and whether or not everything works in the end and that's it.

What other criteria would you suggest be used?

If someone is a legit subcontractor this is perfectly legal. Incidentally, 1099s are not a requirement to successfully use subcontractors. As long as it is a legit business you can just write them a check. As I understand it, 1099s are only required if someone does subcontracting and does not have a business setup as such.

If someone is acting as a subcontractor, they are the ones responsible for whatever taxes and insurance is required, not the contractor. When one goes to a store to buy a pack of gum the store is responsible for seeing that the sales tax is paid, the employees are paid, and whatever taxes and insurance are appropriate are taken care of. The guy buying the pack of gum is just responsible for paying for the gum. It works the same way with legit subcontractors.

Most places do not require WC insurance on principles of a business. If you as a principle of a business choose not to take out WC insurance on yourself, that is your choice. It is often more cost effective not to do so and just pay for a normal health insurance plan like you would need anyway.

 

[hbiss]

What other criteria would you suggest be used?

If someone is a legit subcontractor this is perfectly legal. Incidentally, 1099s are not a requirement to successfully use subcontractors. As long as it is a legit business you can just write them a check. As I understand it, 1099s are only required if someone does subcontracting and does not have a business setup as such.

If the sub is incorporated no 1099 required. Sole proprietor or fly-by-nights require a 1099 if you pay them more than $500 in a calendar year.

Incidentally, and not wanting to drag this up again because it always goes political, as I understand it the new California AB5 directly addresses this by outlawing exactly this situation- if you are an electrical contractor you cannot have 1099 subs doing your work. You have to treat them as W2 employees.

--Hal

 

[CEMatt]

I appreciate your response. I somewhat agree that they can do this if done legitimately but many are showing proof of general liability and workers compensation to get the job but the only employees covered are the ones fixing the issues at the end of the project. Not the ones wiring the house.

 

[K8MHZ]

If the sub is incorporated no 1099 required. Sole proprietor or fly-by-nights require a 1099 if you pay them more than $500 in a calendar year.

Incidentally, and not wanting to drag this up again because it always goes political, as I understand it the new California AB5 directly addresses this by outlawing exactly this situation- if you are an electrical contractor you cannot have 1099 subs doing your work. You have to treat them as W2 employees.

--Hal

Michigan did the same thing

 

[oldsparky52]

Incidentally, and not wanting to drag this up again because it always goes political, as I understand it the new California AB5 directly addresses this by outlawing exactly this situation- if you are an electrical contractor you cannot have 1099 subs doing your work. You have to treat them as W2 employees.

--Hal

North Carolina has made this illegal for a while now. The state's stance is the EC can 1099 someone that has a NC contractors license, or pay a W2 employee. The EC may not pay a 1099 employee to do electrical work if that employee does not have a contractor's license (in NC there is only a contractor's license, no Journeyman or Master's certs). Oh yea, you can't work above your license limitation and if you are a sub your license limitation has to be good for the whole electrical job, not just the part you do.

 

[kwired]

I appreciate your response. I somewhat agree that they can do this if done legitimately but many are showing proof of general liability and workers compensation to get the job but the only employees covered are the ones fixing the issues at the end of the project. Not the ones wiring the house.

Maybe not so common on dwellings but what about an EC that subcontracts a somewhat specialty portion of the project like fire alarm, communications, security systems? Or even hires someone to dig a trench or even horizontal boring for them because they don't have the equipment necessary? Those kind of things seem like legitimate subcontracting to me.

If they are indeed cheating the system, wait until someone gets seriously injured or even killed and nobody has the appropriate coverage in place and the individual or their family decides to file lawsuit. If someone is truly being subcontracted you need to cover them or have documentation that they are self covered in some way, your own insurance will want to see this documentation also during audits.

 

[readydave8]

I still don't understand how 1099 bypasses work comp
The way my work comp has always worked:

If I pay 1099 subcontractor, I have to get proof that he has work comp, or pay my work comp on his wages

Not just electricians, if I hire a painter and pay him from business account, I pay work comp on him, at painter's rate (higher than electricians)

 

[hbiss]

Maybe not so common on dwellings but what about an EC that subcontracts a somewhat specialty portion of the project like fire alarm, communications, security systems? Or even hires someone to dig a trench or even horizontal boring for them because they don't have the equipment necessary? Those kind of things seem like legitimate subcontracting to me.

That's fine because the EC doesn't do that kind of work. It's when an EC hires "independent contractors" then either does nothing but supervise or may have a limited number of employees and hires "independent contractors" to do the same work they are doing.

We have been running into a lot of other electrical contractors that outsource to subcontractors that work as 1099's with no insurance no workers compensation to keep the cost low. After the house is wired the licensed electrician that is contracted comes in to fix all of the issues and completes the remaining work.

-Hal

 

[hbiss]

I still don't understand how 1099 bypasses work comp
The way my work comp has always worked:

If I pay 1099 subcontractor, I have to get proof that he has work comp, or pay my work comp on his wages

Not just electricians, if I hire a painter and pay him from business account, I pay work comp on him, at painter's rate (higher than electricians)

Because you are an honest business. You don't think many of these ECs that price at next to nothing aren't playing with the books or paying under the table?

-Hal

 

[StarCat]

It IS Shady, and the kind of people running this game are undermining their fellow humans for short term gain in a system that is corrupt from the get go.
What people need to realize is that we are not supposed to be in a " debt " based system where everything has been monetized. This will always bring out the lowest of the low with respect to integrity. It is unsustainable and the product delivered will be shoddy and substandard.