How to Pay a Subcontractor on a Split

How to pay a 1099 subcontractor on a percentage: agree three things before the job: what the percent is a percent of, who pays for the parts, and who takes the customer's money. Then the arithmetic is the same every time. Work out the cut. Add back the parts he bought. Take away any cash he already holds. What is left is one number, and it says who pays whom.

This guide works one job three ways, with round numbers, so you can see what each agreement does. Then it shows how to keep the record, and where HeadHoncho does the sum for you.

One Job, Three Agreements

Agreement one: 60% of the job total. The cut is 60% of $1,000, which is $600. The sub also bought $200 of parts, and you hand those back in full. He is owed $800. You keep the other $200.

Agreement two: 60% of the job profit. Profit is the total less parts: $1,000 minus $200 is $800. The cut is 60% of $800, which is $480. Plus his $200 parts back, he is owed $680. You keep $320.

Agreement three: a flat $350 per job. The cut is $350. Plus $200 parts back, he is owed $550. You keep $450.

Same job, same parts, and the sub's pay is $800, $680 or $550, depending on one sentence in the agreement. That is the whole reason to write it down.

The Three Conventions Side by Side

Check it: in every row, what the sub is owed plus what you keep adds back to the $1,000 the customer paid. If your own sheet does not add back to the money in, something is double counted or missing. HeadHoncho's version of this check is exact to the cent, with no tolerance.

If you bought the parts instead, the sub's cut does not change, but his parts line is zero. On the total basis he is owed $600, and you pay $200 for the parts out of the $400 you keep, so you net $200.

Who Collected the Cash

Paying a sub is not only the cut. It is also who is holding the money. Take agreement one, where the sub is owed $800.

• The customer paid you by card or check, $1,000. You hold it all. You owe the sub $800.
• The customer paid the sub $1,000 in cash. He holds your money. He is owed $800 and holds $1,000, so he owes you $200.
• Half and half. The customer paid a $400 deposit in cash to the sub and $600 to you. He holds $400 and is owed $800, so you owe him $400.

The rule is the same each time: what he is owed, less the cash he holds. Positive, you pay. Negative, he pays you. HeadHoncho words this as You owe them or They owe you so nobody has to remember which way a minus sign points.

Card Fees

A card fee is the one deduction that reaches nobody. The card company keeps it. On a percent of total or a flat cut, it does not change the sub's pay. On a percent of profit it does, because profit is taken after parts and fees.

The Mistakes That Cause Arguments

1. The base is not stated. "60%" means $600 to one person and $480 to the other. The difference above is $120 on one small job. Over a month of jobs it is the argument.
2. The parts are counted twice, or not at all. The sub who bought the parts must get them back, and the buyer's price comes off the job once, not once for each side.
3. The cash is forgotten. You pay him the whole cut and forget he already took $1,000 from the customer. Now he owes you and nobody knows.
4. The total moves after the fact. A late payment, a discount or a callback changes what the percent is of. A cut worked out on the day the job closed can be wrong a week later.

A Short Week

He is owed $1,600 and already holds $800 of your money from job A. So you owe him $800, one payment for three jobs. Had the cash been $2,000, he would owe you $400. Same sum, opposite direction.

A Record That Survives a Disagreement

When a sub says "that job should have paid more", you want to answer with the job, not with your memory. Keep, for each job, the total, each payment with who took it, each part with who bought it, the rate you used and the date you closed the balance. Keep the statement you handed over. If a payment was entered wrong, fix the payment and let the sums follow, instead of typing over the result. A figure that was typed over cannot be checked.

What to Agree in Writing

A text message is enough if both of you can find it. Put these in it:

• The percent or flat amount.
• What it is a percent of: the job total, or the profit after parts (and card fees).
• Who buys parts, and that the buyer gets them back in full.
• Who takes the customer's payment, and that cash held is settled at the next close.
• When you close balances: weekly, every two weeks.
• What happens on a callback, a refund or a canceled job.

Whether a sub is an independent contractor or an employee is a legal question and not one this page answers. The IRS explains how it sees it on its independent contractor page, and what a 1099 is in What Is a 1099 Subcontractor?. Ask an accountant if you are unsure.

How to Pay a 1099 Subcontractor by Hand

You do not need us for this. For each job on a sheet:

1. Write the job total: the quote, or what came in if that is more.
2. Write the parts, with who bought each.
3. Work out the cut on the base you agreed. A percent of profit never goes below zero.
4. Add the parts he bought to his cut. That is what he is owed.
5. Take away any cash he collected. That is the number.
6. Check: what he is owed, plus what you keep, plus card fees, equals the money in.

Do that for every job in the week, add the numbers up, and you have one payment. Keep the sheet. A week later, "show me the jobs" is a thirty-second answer.

Try Your Own Numbers

Where the App Does It

If you do this on a sheet every Sunday night, this is the part HeadHoncho takes over. You set the cut once on the sub, under Team, Subs, as a Default cut basis with a Cut value: Percent of job total, Percent of job profit or Fixed amount per job. Any single job can override it. On each job's Money tab you add the payments with Collected by, and the parts with Bought by. The tab prints the working, not just the answer, and ends with the check that everyone's take-home adds back to the money in.

When jobs close, the cut posts. On Finance, Close balance lists each person with what is open and says You owe them or They owe you. One press closes it, and the statement downloads. Walk through it in How to Set Up a Subcontractor Split and How to Close a Balance, or read every rule on Finance, Splits and Payouts.

The same sum is how you find out whether a job made money at all. See How Do I Know If a Job Made Money?, How to Pay Crews on a Percentage, and the definition in What Is Gross Margin Per Job?. The whole picture, from ad to paycheck, is on How It Works.

Questions