Getting subcontractor costs under control in roofing

Ask a roofing contractor what he paid out to subs last year and he will get close. Ask what a specific job cost him in sub labour and you usually get a pause.

That gap is the single most common reason roofing books cannot tell an owner which jobs made money. Sub labour is often the largest cost on the job, and in most books it is a monthly total with no job attached.

Why it happens

Crews get paid by the square, by the job, or weekly across several jobs at once. The cheque goes out, it is coded to "Subcontractors", and the connection to the individual roof is lost the moment it is written.

Material usually survives because there is a supplier invoice with a delivery address on it. Sub labour has nothing tying it to a location unless someone deliberately records it.

Getting the job onto the payment

The fix is a habit rather than a system. Every sub payment needs a job attached before it is entered.

Require job references on sub invoices. The address is enough. A crew invoicing for four roofs in a week should list four lines, not one total.

Split payments that cover several jobs. If a crew is paid $9,000 covering three roofs, it needs splitting across those three. Approximate is far better than unallocated — a rough split gives you usable job costing, no split gives you none.

Enter it while it is fresh. Reconstructing which crew was on which roof six weeks later is guesswork, and it is why this needs to happen at the point of payment.

Then split insurance from retail

Once sub cost is landing on jobs, the second split is the one that changes decisions.

Insurance restoration and retail replacement carry different margins, different administrative load and different collection cycles. Sub cost often differs too, because storm-season crews command more when everyone is busy.

Reported together the average looks fine. Split apart, owners frequently find one stream is carrying the other — and adjust where the marketing money goes accordingly. There is more on this in insurance vs retail margins.

The compliance side, which is not optional

Sub costs are also where roofing contractors take the worst financial hits, and they are not accounting hits.

Workers compensation. If a sub cannot produce a certificate of insurance covering the dates they worked, your carrier will typically treat what you paid them as your own payroll — at the roofing rate, which is one of the highest there is. On a year of sub payments that is a serious number. See workers comp audits.

Injury exposure. If an uninsured sub is hurt on your roof and is later held to have been your employee, the claim may land on you directly. That is a business-ending number rather than a bad month.

1099 reporting. Every unincorporated sub paid $600 or more in the year needs a 1099-NEC. Tracked by payee monthly this is trivial; reconstructed in January it is a week of work and errors.

The rule that covers all three

Before a sub is paid the first dollar: W-9 on file, certificate of insurance on file, expiry date recorded somewhere a person checks monthly. No certificate, no payment.

It sounds rigid, and every roofer who has been through a bad audit applies it.

What good looks like

Each month: sub cost by job, sitting alongside material and your own labour on the same job; gross margin per job; the same split by insurance and retail; and a list of any sub whose insurance is expiring in the next thirty days.

That last line takes a bookkeeper five minutes and has saved contractors more money than any other single report.

Related

• Insurance work vs retail work
• Job costing for contractors
• Roofing bookkeeping services