Late payments can cause frustrating delays, disruptions, and financial strain for contractors. Fortunately, California’s Prompt Payment Law is designed to protect contractors working on private projects by ensuring timely payments. Let’s break it down in plain English, so you know how it works, who qualifies for interest on late payments, and whether you have the right to stop work if payment isn’t received.
What is California’s Prompt Payment Law?
The California Prompt Payment Law (Civil Code Sections 8810–8818) is a state law that ensures contractors, subcontractors, and suppliers on private projects are paid on time. Put simply, it establishes clear deadlines for payments between project owners, general contractors (GCs), and subcontractors once work is completed or materials have been delivered.
How Payment Deadlines Work
- The Owner to the General Contractor (GC):
Once the general contractor submits a payment request (or invoice), the owner must pay within 30 days of receiving the request. If there’s a dispute with part of the payment request, the owner must still pay the undisputed amount within the same timeframe.
- GC to Subcontractors & Suppliers:
After the general contractor receives payment from the project owner, they have 7 days to pay their subcontractors and suppliers.
- Subcontractor to Lower-Tier Subcontractors/Suppliers:
Just like GCs, subcontractors must pay their lower-tier subcontractors or suppliers within 7 days after receiving payment.
The law is clear about payment deadlines. But unfortunately, delays still happen – so what happens if someone doesn’t pay on time?
Can You Get Interest on Late Payments?
Yes! If payment is delayed beyond the deadlines outlined above, contractors, subcontractors, and suppliers are entitled to interest on the unpaid amount.
- Under California law, the interest rate for late payments is 2% per month (or 24% per year) on the unpaid balance.
- This gives contractors some compensation for payment delays and incentivizes owners and general contractors to pay on time.
To claim your interest, you typically need to notify the non-paying party about the overdue balance and demand the interest owed. Keep in mind that some contract agreements may waive the right to collect interest, so it’s always wise to review your contract carefully before signing.
Can You Stop Working if You’re Not Paid?
Yes, but with a few key conditions. Contractors and subcontractors in California have the right to stop work if timely payment is not received, but this right comes with specific legal requirements that you must follow to avoid violating your contract.
Here’s how it works under California law (Civil Code Section 8814):
1. Written Notice:
You must provide the non-paying party (e.g., the owner or general contractor) with a 7-day written notice that you’ll suspend work if payment is not made. This notice should clearly state the amount owed and the payment deadline.
2. Reasonable Suspension:
If payment is still not made after the 7-day notice, you may temporarily suspend work. But the suspension must be reasonable and proportional to the unpaid amount. You cannot abandon the project entirely or act in a way that violates the rest of your contract obligations.
3. Return to Work:
Once payment is made for the outstanding balance, you must resume work within a reasonable timeframe.
Failure to follow these steps may result in legal consequences or claims of contract breach. Always handle payment disputes carefully and document every step along the way.
Why is the Prompt Payment Law Important?
- Financial Protection: This law ensures contractors and subcontractors aren’t left waiting indefinitely for payments that are rightfully owed.
- Fair Payment Practices: By enforcing legal deadlines and penalties, California encourages fairer payment practices in private construction projects.
- Right to Stop Work: Your right to temporarily suspend work is a powerful tool to protect yourself from non-paying parties while maintaining leverage to get paid.
Final Words of Advice
While California’s Prompt Payment Law creates a framework to protect contractors, understanding and enforcing your rights can sometimes be tricky. Here are a few tips to help you stay ahead of payment issues:
- Know Your Contract: Many contracts include clauses about payment timelines, dispute resolution, and waivers of late fees or interest. Make sure you read and understand the terms before signing.
- Stay on Top of Deadlines: Submit payment requests and invoices promptly, and keep detailed records of all payment-related communication.
- Use Written Notices: If a party hasn’t paid on time, always send a formal written notice. Having everything in writing helps protect your rights.
- Seek Legal Advice if Necessary: For complicated disputes or continued non-payment, consulting a legal expert can save you time, money, and headaches.
Need Help Ensuring Timely Payments?
Late payments shouldn’t slow you down. Make sure you know your rights and take proactive steps to protect your business. If you’re dealing with overdue payments or need help understanding contract terms, give us a call at 909-284-9005, we are experienced in California construction law.
By staying informed and assertive, you can ensure that payment delays don’t disrupt your projects—or your cash flow.
