Bookkeeping for contractors and service businesses in MetroWest and Greater Boston.

Call or Text: (774) 277-8683

How do I pay subcontractors vs employees?

Employees and subcontractors get paid through completely different processes. Getting this wrong creates tax problems, penalties, and potential legal exposure. Here’s how each works.

Employees must be paid through payroll. You withhold federal income tax, state income tax, Social Security, and Medicare from each paycheck. You also pay the employer portion of FICA taxes plus unemployment taxes. Before their first paycheck, collect a W-4 for withholding elections and an I-9 to verify work eligibility. Employees need to be covered by workers’ compensation insurance in Massachusetts.

The payroll process runs on a set schedule, whether weekly, biweekly, or semi-monthly. Each pay period you calculate gross wages, apply withholdings, and remit net pay. Payroll taxes get deposited on schedule and filed quarterly on Form 941. At year end, you issue W-2s to each employee.

Subcontractors work differently. You pay them directly with no withholdings. They invoice you for work completed, and you pay the invoice amount in full. No payroll taxes, no withholdings, no workers’ comp requirement on your end. The sub handles their own taxes as a self-employed individual or business.

Before you pay any subcontractor, collect a W-9 form. This gives you their legal name, address, and tax ID number. You need this information to file 1099-NEC forms at year end for any sub you paid $600 or more during the year. The deadline is January 31st. Miss it and you face penalties.

In your books, employee wages run through payroll accounts with separate tracking for wages, employer taxes, and benefits. Construction contractors often code labor to specific jobs so they can see true labor cost by project. Subcontractor payments hit expense accounts and should also be coded to jobs if you’re tracking job costs. The chart of accounts treatment reflects the legal distinction.

Massachusetts takes worker classification seriously. The state uses an ABC test that presumes workers are employees unless you can prove otherwise. The worker must be free from your control, perform work outside your usual business, and have an independently established trade. Misclassifying an employee as a subcontractor exposes you to back taxes, penalties, and potential lawsuits.

For small business bookkeeping in MetroWest Massachusetts, keeping employee and subcontractor records clean and separate matters. Your books need to clearly distinguish payroll expenses from subcontractor expenses. Your 1099 tracking needs to capture every sub payment throughout the year so January doesn’t become a scramble for W-9s you never collected.

If you’re unsure whether someone should be classified as an employee or subcontractor, get professional guidance before you start paying them. Reclassifying after the fact is expensive and complicated. Getting it right from the start is much easier.

Greater Boston's Trusted Bookkeeping Partner

The Next Step:
A Short Conversation

We'll ask a few questions, figure out what you need, and give you a straightforward quote.

More Questions

How can a bookkeeper help my business save money?

A bookkeeper saves you money by catching duplicate payments and billing errors, avoiding late fees and penalties, and giving you the financial clarity to make better pricing and spending decisions.

Read answer

Are there QuickBooks experts near Greater Boston?

Yes, there are certified QuickBooks professionals throughout Greater Boston and MetroWest. Finding the right one depends on whether you need one-time setup, cleanup, or ongoing support, and whether they understand your industry.

Read answer

How do I allocate overhead costs to construction jobs?

Pick an allocation base like labor hours, labor dollars, or total direct costs. Calculate your overhead rate by dividing annual overhead by your allocation base. Apply that rate consistently to each job to understand true profitability.

Read answer

My books are a disaster—where do I start?

Start by gathering all bank and credit card statements, then reconcile accounts month by month before worrying about categorization. Focus on the most recent tax year first if you're behind multiple years.

Read answer

How do I reconcile my bank accounts in QuickBooks?

Reconciliation means matching QuickBooks transactions to your bank statement line by line. You enter the statement ending date and balance, check off matching transactions, and resolve any differences until the balance reaches zero.

Read answer

What's WIP reporting and do I need it?

WIP (Work in Progress) reporting shows whether your open jobs are making or losing money before they're finished. If you run multi-month projects with progress billing, you probably need it.

Read answer

Full-service bookkeeping firm serving contractors and small businesses in MetroWest and Greater Boston. From monthly bookkeeping to job costing and payroll, we bring 20 years of hands-on business experience to your back office. Locally owned in Bellingham, Massachusetts.

Client Reviews

5-Star Rated Firm

© 2026 Janek Business Solutions, LLC