Paying subs in California: the 7-day prompt payment rule and retention release

Why it matters

Paying a sub late isn't only a relationship problem in California. The law sets deadlines for passing money down the chain, adds a monthly penalty when payments are wrongfully held, and can let the side that wins a collection fight recover its attorney's fees. Late payment to a sub can also be a cause for CSLB discipline against your license. This guide covers private jobs. Public works have their own rules.

This is a plain-language summary. Your subcontract and the facts of your job matter, so talk to a construction lawyer before you hold back money in a dispute.

Progress payments: the 7-day rule

Under B&P §7108.5, a prime contractor or subcontractor has to pay its subs no later than 7 days after receiving each progress payment, unless the parties agreed otherwise in writing. The payment is the sub's share of what you received, for the work it did.

• Disputes. If there's a good-faith dispute over an amount, you can withhold no more than 150% of the disputed amount. Pay the rest on time.
• Penalty. If you violate the section, you owe the sub a penalty of 2% of the amount due per month that the payment is late. It's also grounds for discipline against your license.
• Attorney's fees. In a lawsuit to collect money that was wrongfully withheld, the side that wins gets its attorney's fees and costs.
• Where it applies. Private and public works, except where Public Contract Code §10262 applies instead.

The clock starts when you are paid, so the owner's timing matters to you too. On private jobs, an owner generally has to pay an undisputed progress payment within 30 days after you give a payment demand notice, unless the contract says otherwise in writing, with the same 150% dispute limit and 2% monthly penalty (Civil Code §8800).

Retention on private jobs

Retention is the part of each payment held back until the job is done. California's retention rules for private works are in Civil Code §8800 and the sections after it. That article covers both retention an owner holds from the direct contractor and retention a direct contractor holds from its subs (§8810). It doesn't cover retention a construction lender withholds under a loan agreement (§8822).

How much you can hold: the 5% cap

For private-works contracts entered into on or after January 1, 2026, retention withheld from any payment can't be more than 5% of the payment, and total retention can't be more than 5% of the contract price. In a subcontract, the percentage you hold from a sub can't be higher than the percentage the owner holds from you (Civil Code §8811).

Two exceptions in that section:

• Bonds. The cap doesn't apply if you gave written notice, before or when you asked for bids, that a performance and payment bond would be required, and the sub then doesn't provide one from an admitted surety.
• Some residential work. The cap doesn't apply to a residential project that isn't mixed-use and is four stories or less.

Contracts signed before January 1, 2026 aren't covered by §8811. Check the date on your prime contract and on each subcontract.

When retention has to be paid

1. Owner to you: 45 days after completion. An owner who withheld retention has to pay it within 45 days after the work of improvement is completed (Civil Code §8812).
2. You to your subs: 10 days after you receive it. When you receive all or part of a retention payment, you have to pay each sub you held retention from its share within 10 days (Civil Code §8814).

"Completion" has a legal meaning. Under Civil Code §8180, it includes actual completion, the owner occupying or using the work with labor stopped, labor stopping for 60 days in a row, or a recorded notice of cessation after 30 days with no labor. Work that a public entity has to accept is complete when it's accepted.

Disputes over retention

• Hold only the disputed part. In a good-faith dispute with a sub, you can withhold up to 150% of the estimated value of the disputed amount from that sub's retention, and pay the rest (§8814).
• Answer completion notices in 10 days. If a sub notifies you that disputed work is complete, you have 10 days to say whether you accept or reject it. If you accept, you have 10 days to pay the retention held for that work (§8816).
• Late retention costs 2% a month. An owner or direct contractor who doesn't pay retention on time owes a penalty of 2% per month on the amount wrongfully withheld, and the winning side in a collection lawsuit gets costs and reasonable attorney's fees (§8818).
• You can't contract around it. Waiving these retention rules by contract is against public policy (§8820).

Before you pay: check the license

Payment timing assumes the sub was licensed for the work. Under B&P §7031, a contractor generally can't sue to collect pay for licensed work unless it was licensed the whole time, and whoever paid an unlicensed contractor can sue to get the money back. A quick lookup on Sub Check or CSLB's Instant License Check before each payment takes a minute. If the license has lapsed, see what to do if a sub's license is suspended mid-job, and talk to your lawyer before paying for work done during the gap.

Payment checklist

• Read the payment terms in each subcontractThe 7-day rule applies unless you agreed otherwise in writing.
• Log the date each owner payment arrivesYour 7-day and 10-day clocks start then.
• Check the retention percentageFor contracts from January 1, 2026: 5% at most unless an exception applies, and no more than the owner holds from you.
• Dispute only what's disputedHold no more than 150% of the disputed amount, write down why, and pay the rest on time.
• Check the sub's license before each paymentSave a dated copy. Full steps: how to check a CSLB license.

General information for California contractors, current as of November 4, 2026. It isn't legal advice; rules change, so check the official source linked above.

More guides

• How to check a California contractor license (CSLB): a GC's checklist
• Workers' comp and subcontractors in California: what GCs should check
• Certificate of insurance checklist for California general contractors
• Additional insured and waiver of subrogation for subcontractors: a California GC's guide
• Risks of hiring an unlicensed subcontractor in California (for GCs)
• Workers' comp premium audits and subcontractors in California: how to prepare
• California contractor's license bond ($25,000): what it covers for a GC
• Matching a sub's California license classification to the work
• Is a sub's certificate of insurance real and current? How California GCs can check
• A sub's CSLB license was suspended or expired mid-job: what California GCs should do
• A sub's CSLB record warns of a future suspension or class removal: what California GCs should do
• Preliminary notices and lien waivers from the GC's side in California
• Hiring subs on California home improvement jobs: what changes for the GC