The Waiting Game: Report Shows Subs are Going 30 Days or More Without Getting Paid

Late payments have cost the construction industry $208 billion in 2022—53% more than in 2021. That’s according to a report by Rabbet, a construction financial software firm. While the increase seems drastic, it reflects the current economic climate, according to the report.

The survey found that 49% of subcontractors waited 30 days or more for payments to come through. Additionally, 62% of general contractors reported financial costs as a result of floating payments. These payment issues can make their way to the developers and financiers of a project, who can eventually suffer from project delays and higher bids on jobs.

“As these realities set in, the implications for contractors grow tremendously,” says Will Mitchell, CEO of Rabbet. “The risk of contractors going out of business skyrockets in environments like this and furthers the necessity for a better payment process in general. Contractors are clearly feeling this strain considering there was an 8.5-times increase in general contractors using retirement savings to float payments for their business.”

Some contractors claimed in the survey that they’re boosting their bids anywhere from 5-10% to help absorb associated costs. They also say that they’re becoming more finicky when selecting bids because of increasing labor and supply prices. “When general contractors and subcontractors are in a situation where they can’t sustain their businesses because of disjointed payment processes, the risk to both lenders and developers grows immensely,” says Mitchell. “Developers can’t control inflation and materials costs. The greatest opportunity to reduce project costs and attract and retain the best contractors is by implementing systems to get people paid quickly.”

DOL Proposes New Independent Contractor Rule

The U.S. Department of Labor (DOL) proposed a rule change in its process for classifying workers as employees versus independent contractors under the Fair Labor Standards Act (FLSA).

The proposed rule would use a six-factor “economic reality test” to determine whether a worker is economically dependent on the employer or in business for themselves.

The litmus is based on the following factors:
• If the work in question is an integral part of the employer’s business;
• If the worker’s managerial skill affects the worker’s opportunity for profit or less;
• If the relationship between the worker and employer is permanent or indefinite;
• The nature and degree of the employer’s control;
• If the worker uses specialized skills to perform the work, and if those skills contribute to business-like initiative; and
• If investments by a worker are capital or entrepreneurial in nature.
The DOL says the proposed rule would “combat employee misclassification,” which occurs when an employer incorrectly defines a worker as an independent contractor rather than an employee.

“[Employee] misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” says DOL secretary Marty Walsh.

In announcing the proposed changes, the DOL states it is responsible for ensuring that employers do not misclassify FLSA-covered workers as independent contractors and deprive them of their legal wage and hour protections. Misclassification denies basic worker protections such as minimum wage and overtime pay and affects a wide range of workers in the home care, janitorial services, trucking, delivery, construction, personal services, and hospitality and restaurant industries, among others.

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