New York governor Kathy Hochul recently signed a law which makes construction contractors in New York liable for the wages owed to employees of the subcontractors working under them. In Senate bill S2766C, prime contractors will be responsible for wage and benefit claims, including the following:

  • Unpaid wages owed to employees of the subcontractor.
  • Benefits or wage supplements, defined by New York Labor Law (NYLL) §198 including:
    • Expense reimbursement
    • Health, welfare and retirement benefits
    • Vacation, separation or holiday pay

Additionally, attorney fees, penalties, enforcement actions and other costs are also included in the law. The law is set to take effect on January 4 of 2022, and applies to new, renewed, modified and amended construction contracts. Prime contractors can take action against subs to try and recover owed wages and make indemnification arrangements by contract with their subs in some circumstances. Any  such arrangement, however, does not change a worker’s ability to also bring and action against the sub or contractor for payment of owed wages.

Liability cannot be waived under the law except through a collective bargaining agreement under NYLL §198-e. This essentially means that the law will apply to every non-union contract in the state.

Governor Hochul states that:

“These bills will make sure workers are paid fair wages, receive good benefits and stay safe on their worksites. Our state is home to a long and proud legacy of supporting working New Yorkers, and we’re working to bolster that for the future.”  (Source)

The law essentially encourages and enables contractors to audit the payroll practices used by their subs. It gives them the ability to request certified payroll records along with details on any specialty contractor the sub hires to perform work. And while prime contractors could already withhold payments under certain circumstances, the new law expands that by allowing payments to be withheld if a sub fails to provide requested information.

What NY contractors can do to limit liability

Liability has always been a concern for general contractors, but this law highlights the issue further. The following tips can help you reduce some common problems that lead to violations.

  1. Set up front deadlines for weekly reports and stay on top of anyone that is late. When someone falls behind it creates a bottleneck, but it may also lead to rushed work and mistakes. It is also a sign that something is off within their own processes.
  2. Perform payroll reviews periodically, especially if you have contractors that regularly seem to struggle with reporting. Signs of this include being late with reports or having to submit corrected reports.
  3. Unify your process for managing subs by keeping all communication in the same place. For example, use a single email inbox for communicating with subs and gathering weekly reports. This will keep you from having to check multiple accounts or juggling info coming into your office by phone and text.
  4. Unify your payroll and compliance processes so that every sub is following the exact same procedure. For example, if you prefer everyone to submit reports by email by noon on Friday, don’t accept them any other way and send notices to anyone that is late.

One way you can more efficiently manage sub compliance and reduce your liability is to utilize software specifically made for the job. The right system can streamline payroll and reporting tasks so that you can keep everything related to sub’s compliance in a single place.

The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.