In the construction industry, managing subcontractors efficiently is critical to staying on budget, maintaining compliance, and ensuring accurate job costing. With multiple vendors, varying payment schedules, and specific tax requirements, it’s essential to track subcontractor activity carefully. QuickBooks Online (QBO) offers a powerful platform tailored to streamline construction accounting—from 1099 reporting to project tracking and vendor management.
Why Tracking Subcontractors Matters in Construction Accounting
Proper subcontractor tracking isn’t just a back-office task; it’s a vital part of successful construction accounting. Here’s why:
- IRS Compliance: Construction businesses must file 1099s for independent contractors paid $600 or more. Poor tracking can lead to hefty penalties.
- Job Costing Accuracy: Ensure every dollar paid to subcontractors is allocated to the correct job for precise profitability analysis.
- Streamlined Payments: Monitor due payments and maintain clear records to avoid disputes and maintain strong relationships with contractors.
Step-by-Step Guide to Tracking Subcontractors in QuickBooks Online
1. Set Up Subcontractors as Vendors
To start, every subcontractor should be properly set up in QuickBooks Online as a vendor. Here’s how to do it:
- Navigate to Expenses > Vendors in QuickBooks Online.
- Click New Vendor and enter the subcontractor’s details.
- Select “Subcontractor” from the Vendor Type dropdown if available.
- Check the box for “Track payments for 1099” to ensure inclusion in tax reports.
- Upload a signed W-9 form for each subcontractor for tax compliance.
2. Enable and Configure 1099 Reporting
QuickBooks Online includes built-in tools to simplify 1099 reporting:
- Navigate to Expenses > Vendors and click Prepare 1099s.
- Follow the wizard to map applicable expense accounts (e.g., Construction Labor, Contracted Services).
- Confirm vendor details and check for missing TIN numbers or addresses.
- At year’s end, use QBO’s e-file options or export the 1099 Summary report for manual filing.
3. Assign Subcontractor Costs to Jobs and Projects
With QBO Plus or Advanced, you can activate the Projects feature for detailed job costing:
- Navigate to Settings > Account and Settings > Advanced and enable Projects.
- Create a new job or project and assign bills, checks, or expenses directly to it.
- Link subcontractor costs at the transaction level to get real-time project profitability insights.
4. Use Classes and Categories for Better Tracking
To analyze subcontractor costs more deeply, implement Class Tracking and Categories in QBO:
- Activate classes under Settings > Advanced > Categories.
- Create classes such as Residential, Commercial, or Government Projects.
- Label transactions based on service types like Electrical, Plumbing, or Masonry.
- Use class-based reports to evaluate performance across business segments.
5. Manage Payments Efficiently
Tracking subcontractor payments properly is essential for audit trails and cash flow:
- Use Bills > Pay Bills or Write Checks to issue payments.
- Enable bank feeds to record ACH or EFT payments directly.
- Integrate third-party payment platforms like Melio or Bill.com for automation.
- Use recurring billing for contractors on long-term agreements.
Enhancing Subcontractor Tracking with Integrations
Time Tracking with QuickBooks Time (TSheets)
Even if subcontractors aren’t on payroll, their time can be tracked within jobs for labor costing:
- Install QuickBooks Time (formerly TSheets) and invite subcontractors or site managers.
- Log hours to specific projects or cost codes.
- Sync time data with invoicing, billing, or reporting in QBO.
Integrate with Construction Management Tools
Expand your accounting functionality by connecting QBO with specialized construction apps:
- Buildertrend: Manage schedules, cost codes, job changes, and sync financials.
- Knowify: Offers bidding, contracts, and deep job costing tools. Easily integrates with QBO.
- CoConstruct: Ideal for custom home builders managing project selections and client communication.
These tools sync data such as estimates, expenses, and change orders to QBO, enabling unified construction accounting.
Reporting on Subcontractor Expenses and Job Performance
Use Built-In Reports in QuickBooks Online
QBO offers several reports to monitor subcontractor-related metrics:
- Vendor Expense Summary: Compare spending across subcontractors.
- 1099 Summary and Detail Reports: Verify tax data before filing.
- Project Profitability Report: Review income vs. expenses for each construction job.
Create Custom Reports for Advanced Analysis
For deeper performance insights:
- Customize reports to show subcontractor costs by month or project phase.
- Use estimates vs. actual comparison to track budget adherence.
- Segment data by class or category to refine business strategy.
Industry Trends and Adoption Insights
The construction industry is rapidly embracing cloud-based tools to enhance efficiency and accuracy:
- Cloud Accounting Adoption: Over 1.5 million contractors now use QuickBooks for job costing and construction vendor management.
- Integration Growth: Construction-specific integrations with QBO have surged by 30% year over year.
- Remote Collaboration: Cloud platforms enable field and office teams to collaborate in real time.
Conclusion
Tracking subcontractors in QuickBooks Online is not only possible—it’s remarkably efficient when the right features are used. From vendor setup and 1099 tracking to leveraging integrations and generating insightful reports, QBO offers construction companies a full suite of tools to gain financial clarity and maintain compliance.
Take the time to properly configure subcontractor tracking in QBO, enable Projects, implement Class tracking, and explore third-party app integrations. For those new to QuickBooks or less confident in setup, consulting a QuickBooks ProAdvisor can make a significant difference.
Optional Add-ons
- Download our free checklist: “Setting Up Subcontractors in QuickBooks Online.”
- FAQ: “Can subcontractors be included in payroll?” — No. They should be tracked as vendors for 1099 reporting.
- Call to Action: Need help tracking subcontractors? Contact us for a free QuickBooks consultation.