W-2 Crew vs “Just a Sub”: What a House Builder Gets Wrong
A carpenter builds houses with a four-person crew.
Two of them have been with him most of the year. They use his nail guns. They show up when he texts. He pays them by the job and calls them subs.
The check says 1099.
New York likely will not.
Last week was about what goes on the invoice. This week is about who gets the check.
This is federal and New York
The IRS can reclassify a worker. So can New York. For house builders, New York usually gets there first.
Federal. The IRS looks at the person helping you—the framer, the helper, the “sub.” Who directs their work? Who pays for their tools and job costs? Does that person look like they run their own business, or like they work for you?
If they are an employee, you withhold, pay the employer share of FICA, and issue a W-2. Writing “1099” on the check does not decide it.
IRS overview: Independent contractor or employee?
IRS detail and examples: Publication 15-A
The IRS is not the only federal agency that cares. The U.S. Department of Labor can also treat that person as an employee for minimum wage and overtime, even if you issued a 1099.
New York construction. The Construction Industry Fair Play Act starts with employee unless the person passes a three-part test. All three parts. Not one. Not two.
Official page: Construction Industry Fair Play Act
They control how the work gets done, not just the finished wall.
The work is outside the usual work of your business.
They already run their own trade, with other customers.
If you build houses and someone frames houses for you, part 2 almost always fails. Framing is your business.
An LLC name on the invoice does not finish the test. New York has a separate 12-point test for a true separate business. Most helpers on a small crew do not meet it.
The IRS sniff test and Fair Play are not the same test. You can look fine to one and fail the other. New York’s construction rule is the stricter of the two for this kind of crew.
Same crew, two columns
Employee
You set the hours and the sequence
They use your tools
They work mainly for you
You pay by the hour or a regular draw
You carry workers’ comp
Real sub
They bid the scope and run their own method
They bring their own tools and crew
They work for other contractors
They invoice you
They carry their own insurance
Dan has framed for you since April. He uses your saws. He has no other customers this year. That is the left column, even if last year’s 1099 is already in the folder.
The plumber who shows up with a helper, a van, a policy, and three other builders on the calendar is closer to the right column.
What breaks if you get it wrong
This is not only a form problem.
Federally, you can owe back withholding and FICA. In New York you can also owe unemployment and workers’ comp. Fair Play civil penalties can run up to $2,500 per misclassified worker the first time, and up to $5,000 each after that within five years. Willful cases can go further. A workers’ comp claim is a common way this surfaces.
Calling it a 1099 does not move the risk off you.
Do this week. Do not rebuild the crew on Monday.
Write every name you paid this year. Mark E or S.
Then:
W-9 on file before the next sub check https://www.irs.gov/forms-pubs/about-form-w-9
Insurance certificate from anyone you still treat as a sub—their policy, not yours—before they start
Written scope: project, not “show up when I text”
Stop cash in an envelope
Do not move someone from 1099 to payroll mid-job without talking to payroll and your CPA. Get the names right first. Change the status on purpose.
Do this before you pay anyone again
Every name labeled E or S
W-9s in the folder
Certs of insurance for true subs
No “sub” who only works for you, on your tools, on your clock
Last week: when New York sales tax goes on the invoice.
Next week: if there is no invoice, there is no file.
Read the rules yourself
NY DOL, Fair Play Act: dol.ny.gov/construction-industry-fair-play-act
IRS, employee or contractor: irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
IRS Publication 15-A: irs.gov/publications/p15a
Own Your Numbers.
Nina Guidi, CPA
This article is for general information only and is not tax, legal, accounting, or insurance advice for your specific situation. Rules depend on your facts and current law. Talk with your CPA and, when needed, an attorney before you file, elect, or change anything.