You have a trade scope ready and need to agree how the sub gets paid. Choose the price basis first, then the payment schedule. A fixed-price job can be paid through progress draws, and an hourly scope still needs a clear approval and billing process.
Start with a reviewed agreement that states when payment is due. Construction subcontract forms address price, progress payment, changes, and final payment as distinct subjects. AIA subcontract instructions, ConsensusDocs 750 sample. Use the comparisons below to plan the agreement. They do not set mandatory terms.
1. Confirm who you are hiring and paying
Identify the business signing for the scope and receiving payment. Confirm that the working arrangement has been reviewed to decide whether to use contractor payments or payroll. The IRS requires classification of the relationship before deciding payment treatment. IRS classification guidance.
Do not use a fixed price to make a worker look independent. Payment method is part of the IRS financial-control analysis, not a complete status test. IRS financial control. Ask your CPA to review the arrangement when classification is unclear.
Keep the payee’s business name, tax record, and payment instructions together in your accounting file. Ask the sub to explain mismatches before the first payment. Keep tax identifiers out of a shared jobsite sheet.
2. Choose fixed, hourly, or unit pricing
Use this table to compare pricing options for the scope. Check the terms instead of assuming one method always costs less.
Scroll to read all columns.
| Price basis | Consider it when | Agree before starting |
|---|---|---|
| Fixed price per scope | You can define the result and inclusions clearly | Drawings, materials, exclusions, completion, and changes |
| Hourly or time-and-materials | You need an agreed process for uncertain or directed work | Rates, covered time, materials, records, approvals, and limits |
| Unit price | An agreed measured quantity can define the work | Unit definition, measurement method, accepted quantities, and rate |
For a fixed-price package, compare both parties’ scope documents. Ask who supplies materials, what site conditions the price assumes, and which return visits are included. Resolve exclusions before signing instead of treating every later disagreement as an extra.
For hourly work, name the person who authorizes it and the person who reviews the records. Agree whether travel, waiting, pickups, equipment, and materials are included in the rate or handled separately. Do not invent these terms after the time sheet arrives.
For unit-price work, agree how quantity is measured and accepted. Identify where both parties can inspect the record. If the measurement method changes, document it before calculating the new amount.
3. Choose when payment is requested
Set the payment schedule separately from the price basis. Discuss completion billing, defined milestone draws, or periodic billing, depending on the scope and the parties’ agreement. Write the agreed billing triggers into the agreement.
AIA offers payment application forms for multiple contract structures, including subcontractor variations and cost-of-work versions. AIA payment-form FAQ. Ask whether the project requires those forms or a simpler agreed invoice package.
For a longer scope, tie draws to progress you can check. Define when each milestone is complete. If the milestone requires an inspection, identify the official result the reviewer needs.
For a deposit or advance, identify what it funds and how it is credited against later billings. Discuss evidence, ownership, delivery, and any cancellation terms for materials with counsel. Record an advance separately. Do not show it as completed work without evidence.
Avoid borrowing another builder’s draw percentages. Base the schedule on the priced scope and the sub’s documented commitments. Check that both sides understand what work and costs fall between draws.
4. Agree how to submit, review, and pay each bill
Give the sub the submission contact, required reference numbers, billing dates, and backup list. Name the reviewer and the person who can authorize payment. State how the due date is calculated.
Use this suggested agreement checklist:
- Which invoice or application format is required.
- Which work, time, quantity, or progress record supports the request.
- How approved changes enter the billing.
- How the reviewer identifies rejected or disputed items.
- Which payment trigger and due-date calculation apply.
- Whether retainage applies and how release is requested.
- What is required for final payment and closeout.
AIA’s subcontract summary addresses progress-payment calculation and express retainage provisions. AIA A401 summary. Read the actual contract rather than assuming a standard retained percentage.
If you use a pay application, agree the schedule of values before the first submission. If you use an invoice, agree how prior draws and credits appear. The pay application guide and invoice guide cover those records.
5. Check residential payment law before copying terms
North Carolina’s Chapter 22C contains subcontractor-payment rules, including a seven-day rule after receipt of covered payments. Section 22C-6 excludes residential contractors and several residential improvement categories, including projects consisting of twelve or fewer residential units. N.C. Gen. Stat. ch. 22C.
Do not promise that the chapter governs every house. Ask a construction attorney which law applies to the project and how it interacts with your proposed terms. Bring any language tied to owner payment or lender funding to that review.
Ask what happens when a bill is incomplete, a line is disputed, or the owner does not pay. Name who communicates the problem and how to document it. Keep the agreed due date clear instead of promising payment when funds arrive.
6. Control changes before paying for extras
Name the contact authorized to approve a change in scope, price, or time. Agree how to document changes before the crew starts. Use that process if the superintendent requests work outside the agreement.
Use the change approval checklist before adding extras to the subcontract payment record.
AIA’s subcontract summary distinguishes modifications to the subcontract from modifications to the prime contract. AIA A401 summary. For your job, make the approval record identify which agreement and scope it changes.
Track whether each change is requested, approved, billed, or paid. Ask the reviewer to reconcile the invoice with the approved record. Do not approve a bill just because the work looks complete. Check that the price was authorized.
7. Check the bill and verify where to send payment
Check the billed work against the agreed payment trigger and backup. Record approval or the exact mismatch. Ask counsel how to handle disputed amounts, setoffs, or withheld payments rather than improvising a remedy.
Verify payment instructions during onboarding. Independently confirm any change before using it. The FBI advises verifying altered account numbers and payment procedures through a trusted contact route. FBI business email compromise guidance.
Use a payment method that leaves a record accounting can match to the bill. Record the payee, date, amount, method, job allocation, and invoice reference. IRS recordkeeping guidance identifies supporting records for business expenses. IRS recordkeeping.
8. Review waivers and reconcile final payment
Have counsel approve any lien waiver or release for the jurisdiction and payment. Check the claimant, covered amount, period, exceptions, and whether the document acknowledges receipt or depends on payment. Do not choose a legal form from a payment checklist alone.
North Carolina restricts specified anticipatory lien waivers given in consideration for awarding a construction contract. N.C. Gen. Stat. § 44A-12(f). That rule does not mean every later release has the same effect.
At final billing, check the contract value, approved changes, prior payments, retainage, and requested balance. List any remaining closeout duties separately. Give the sub a payment reference it can match to its invoice.
Keep tax reporting as a separate accounting review. For qualifying 2026 nonemployee service payments, the general federal reporting threshold is $2,000, subject to exceptions. IRS W-2 and 1099 FAQ. Use W-9 forms for subcontractors to collect tax identity privately, then ask your CPA about reporting.
Keep sensitive records private
Restrict bank instructions and tax forms to accounting. Give the site team approval status only. FTC access guidance.
For year-end reporting after the payment records are reconciled, follow the subcontractor 1099 workflow.
Where Cercha fits
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