Subcontractors get paid through a tiered chain: the project owner pays the general contractor, and the general contractor then distributes a portion of those funds to each subcontractor according to the pricing model and schedule written into the subcontract. The cycle from invoice to deposited funds commonly runs 30 to 60 days, and several layers of protection — contract clauses, lien rights, payment bonds, and prompt payment statutes — determine what happens when a payment is late or refused. Here is how the money actually moves, what you have to produce to trigger each check, and what you can do when a payment does not arrive.
The Payment Chain and Timing
Money flows down. The owner pays the general contractor on an approved pay application, and the general contractor is then responsible for cutting checks to each subcontractor based on the work that subcontractor billed for in that cycle. Review of the pay application by the general contractor or project architect usually takes 15 to 30 days, during which the work is inspected against the billing. After approval, funds commonly arrive by ACH transfer, which clears in one to two business days, or by paper check. Wire transfers move faster but carry higher fees and are uncommon for routine progress payments.
On most jobs the full cycle, from submitting an invoice to seeing the money, runs 30 to 60 days depending on the contract. Paper invoices sent by certified mail create a verifiable submission date, which matters if a dispute later turns on when the general contractor received the bill.
How the Price Is Set
The subcontract fixes the pricing model, and that model decides who carries the risk if the job runs long or materials cost more than expected.
Lump Sum
A lump sum, or fixed-price, contract sets one price for the entire scope before work starts. If actual costs come in under the bid, the subcontractor keeps the difference. If costs run over, the subcontractor absorbs the loss. This model fits scopes that are clearly defined and unlikely to change.
Time and Materials
A time-and-materials contract pays for actual hours worked at a negotiated hourly rate, plus materials with a markup for overhead and profit. It fits scopes that are uncertain or likely to shift. Because the total is open-ended, general contractors sometimes cap it to limit exposure.
Unit Price
Unit-price contracts break the work into measurable units — square feet of flooring, cubic yards of concrete, linear feet of pipe — and pay a set rate per unit completed. This keeps per-task pricing predictable when the total quantity is unknown at the outset.
Mobilization Payments
When a job requires heavy startup costs, such as moving equipment to a remote site, the subcontract may include a mobilization payment paid before productive work begins. On federal contracts, the mobilization payment is typically around 60 percent of the mobilization line item, with the remainder paid upon demobilization at the end of the project.1Acquisition.GOV. Progress Payments Under Construction Contracts
What You Must Hand Over Before a Check Clears
Form W-9
Before releasing any payment, a general contractor collects an IRS Form W-9 with your taxpayer identification number. That number lets the general contractor file Form 1099-NEC reporting nonemployee compensation at year-end.2Internal Revenue Service. Forms and Associated Taxes for Independent Contractors For payments made in 2026, a 1099-NEC is required for any subcontractor paid $2,000 or more during the calendar year, up from the previous $600 threshold.3Internal Revenue Service. Form 1099 NEC and Independent Contractors Without a valid W-9, the general contractor must withhold 24 percent of each payment and send it to the IRS as backup withholding.4Internal Revenue Service. Form W-9 (Rev. March 2024)
Certificate of Insurance
Most general contractors require a Certificate of Insurance before you set foot on site. Common requirements include general liability coverage (often $1,000,000 per occurrence and $2,000,000 aggregate) and workers’ compensation. Many general contractors also ask to be named as an additional insured on your policy. Payments are usually held when insurance documentation lapses.
Lien Waivers
Lien waivers clear title as the money moves. A conditional waiver gives up the right to lien for a specific payment, but only once that payment actually clears. An unconditional waiver takes effect on signing and confirms you have already been paid for that period. General contractors routinely require a signed waiver for the prior payment before releasing the next one.
Backup Documentation
A payment request is only as strong as its records. Keep labor hours, material receipts, delivery tickets, and daily progress reports, and submit them with each invoice. On larger projects, standardized billing forms break the contract into scheduled values and track the percentage of each line item completed to date.
Pay-When-Paid vs. Pay-If-Paid
Two clauses control whether the general contractor is on the hook to pay you when the owner is slow or absent. Know which one your subcontract uses before you sign.
A pay-when-paid clause ties the timing of your payment to when the general contractor is paid by the owner. Most courts treat it as setting a reasonable timeframe, not an indefinite hold: even if the owner is slow, the general contractor must pay within a reasonable period after the work is satisfactorily completed.
A pay-if-paid clause is far more aggressive. It makes the owner’s payment a condition that must be met before you are owed anything at all. If the owner never pays, the general contractor owes you nothing. At least six states, including California, New York, North Carolina, and Wisconsin, have declared pay-if-paid clauses void as against public policy, and the trend is toward greater restriction. Check your state’s rule before signing.
Retainage
Retainage is a percentage of every approved payment that the general contractor holds back until the job is finished. On private projects it typically runs 5 to 10 percent. On federal construction contracts it cannot exceed 10 percent and must be paid promptly once all contract requirements are met.1Acquisition.GOV. Progress Payments Under Construction Contracts
To collect retainage, you generally must finish all remaining work, clear any deficiencies from the final inspection, and submit all closeout documents. On federal jobs, the prime contractor must certify to the contracting officer that you are entitled to the retained amount before requesting the funds from the government.5Acquisition.GOV. 52.232-27 Prompt Payment for Construction Contracts Retainage is one of the most common sources of payment disputes, so track the running balance on every pay application and push for release as soon as your scope is complete.
Change Orders and Extra Work
Work outside the original scope — added tasks, design changes, unforeseen site conditions — should be documented through a written change order before you start. The change order amends the contract to reflect the revised scope, added cost, and any time extension. Without one, the general contractor can argue the work was never authorized and refuse to pay for it.
Some subcontracts require you to proceed with changed work immediately and sort out the cost later. Refusing in that situation can be treated as a breach and can give the general contractor grounds to terminate. If your subcontract has that clause, document everything as you go — photographs, daily logs, material receipts — and submit a formal cost proposal as soon as possible. That record is what carries your claim later.
If the Money Stops: Preliminary Notices and Mechanic’s Liens
In most states, preserving the right to file a mechanic’s lien starts with a preliminary notice sent near the beginning of the project. The notice goes to the property owner, the general contractor, and sometimes the project lender, informing them that you are providing labor or materials and may have a lien right if you are not paid. The typical deadline is within 20 days of first furnishing labor or materials, though the exact window varies by state.
Skipping the preliminary notice where it is required can forfeit your lien right entirely, which is the strongest tool you have for collecting on a private job. Even where it is not strictly required, sending one puts the owner on notice and often speeds up payment.
A mechanic’s lien is a legal claim recorded against the property for unpaid labor or materials that improved it. The lien attaches to the title and makes the property difficult to sell or refinance until the debt is resolved. If the owner still refuses to pay, the lien supports a foreclosure action to recover what is owed.
Filing deadlines are strict and vary widely by state. Some states allow as few as 60 days after the last day of work; others permit several months. Missing the deadline permanently destroys the lien right for that project. The recording fee at the county recorder’s office also varies, and some states require the lien to be notarized. Beyond filing, many states impose a separate deadline for bringing a lawsuit to enforce the lien after it is recorded. Miss any one step and the claim can fail.
Federal Jobs and the Miller Act
You cannot file a mechanic’s lien against federal government property. The Miller Act is the substitute. Any federal construction contract over $100,000 requires the general contractor to post a payment bond that guarantees funds for subcontractors and material suppliers who are not paid.6Office of the Law Revision Counsel. 40 USC 3131 – Bonds of Contractors of Public Buildings or Works
To claim against the bond, an unpaid subcontractor may file suit after 90 days have passed since the last day of work or material delivery, and the suit must be filed within one year of that last day. A sub-subcontractor, meaning someone who contracted with a subcontractor rather than directly with the general contractor, has an added requirement: written notice to the general contractor within 90 days of the last day of work, stating the amount owed and the party they worked for.7Office of the Law Revision Counsel. 40 USC 3133 – Rights of Persons Furnishing Labor or Material Missing either the notice or the one-year window forfeits the bond claim.
Most states have their own versions, commonly called Little Miller Acts, imposing similar bonding on state-funded construction. Thresholds and claim procedures vary by state.
Prompt Payment Deadlines and Interest
On federal construction contracts, the prime contractor must pay each subcontractor within seven days of receiving payment from the government agency.8Office of the Law Revision Counsel. 31 USC 3905 – Payment Provisions Relating to Construction Contracts If that deadline is missed, the prime contractor owes interest at the rate set by the Secretary of the Treasury, the same rate that applies when the government itself pays late.9Office of the Law Revision Counsel. 31 USC 3902 – Interest Penalties
Most states have their own prompt payment statutes covering both public and private jobs. Deadlines and interest rates vary, but the principle is uniform: once a general contractor is paid for your work, those funds cannot be held indefinitely. If a payment is late, look up the specific deadline and interest rate in your state’s prompt payment law.
Taxes on What You Receive
Payments to a subcontractor arrive gross, with nothing withheld for income tax or payroll tax unless backup withholding is in play. You are responsible for setting aside money for both income tax and self-employment tax throughout the year.
Self-employment tax covers Social Security and Medicare at 15.3 percent of net self-employment earnings — 12.4 percent for Social Security up to an annually adjusted wage base, and 2.9 percent for Medicare with no cap.10Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) That is roughly double what a W-2 employee pays, because you cover both the worker and employer share.
The IRS expects quarterly estimated payments covering both income tax and self-employment tax. The due dates are April 15, June 15, September 15, and January 15 of the following year.11Internal Revenue Service. When To Pay Estimated Tax Missing them can trigger underpayment penalties even if you are owed a refund at filing. A common rule of thumb is to set aside 25 to 30 percent of each payment for combined federal tax, with the actual figure depending on total income and deductions.