In Arizona, a fully completed written independent contractor agreement submitted to your carrier can stop premium on what you pay that sub, unless the presumption it creates is overcome. Nevada deems subs and their crews the principal contractor's employees, and a contractor licensed there can't use the independent-enterprise exception. California presumes an unlicensed sub doing licensed work is an employee.
Every Crew Deserves a Crown
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Sorting out subcontractor vs employee workers comp in Arizona and Nevada starts from opposite ends. Arizona looks at control and lets you put the relationship in writing; Nevada makes a principal contractor answer for its subs' crews. California runs its presumption through the contractor license.
| State | Starting Rule | What Can Keep a Sub Off Your Payroll | Source |
|---|---|---|---|
| Arizona | Independent if free of your rule or control and answerable only for the result; subs' workers can count as yours where you control work in your trade. | A completed agreement submitted to your carrier, or a sole proprietor waiver | Arizona Revised Statutes 23-902 and 23-961 |
| Nevada | Subs, independent contractors and their crews are deemed the principal contractor's employees. | The sub's own industrial insurance, shown by certificates and insurer statements | Nevada Revised Statutes 616A.210, 616B.603 and 616B.645 |
| California | Anyone rendering service is presumed an employee; the ABC test applies unless the construction exception is met. | A valid CSLB license for the work and the other conditions of the construction exception | Labor Code 3357, 2775, 2781 and 2750.5 |
Arizona's test in Arizona Revised Statutes 23-902(C) asks whether the person stays independent of your business while doing the work, free of its rule or control and answerable only for the result of a definite job. Separately, Arizona Revised Statutes 23-902(B), the statutory employer rule, makes you the employer of a sub's crew if you hold on to supervision or control and the sub's work falls within your own trade. That rule is behind most GC audit charges; the Arizona statutory employer rule page has the state's other rules.
Arizona also offers a document that can change the audit. Under Arizona Revised Statutes 23-902(D), an agreement signed and dated by both sides, with the eight statements below and a disclosure that the contractor isn't entitled to workers comp from your business, creates a rebuttable presumption of independence. In paraphrase, it says your business:
Once the fully completed agreement reaches your carrier, the carrier may not collect premium on your payments to that contractor unless the presumption is overcome. Because it can be rebutted, the agreement holds up best when the jobsite matches it.
For a sole proprietor, Arizona Revised Statutes 23-902(E) adds a route: a business using a sole proprietor who waived coverage under Arizona Revised Statutes 23-961(N), signed and dated by that person and the business's carrier, isn't liable for coverage or premium for them. Under 23-961(M), the carrier also needs written audit findings before charging premium on alleged statutory employees. See the Arizona sole proprietor workers comp waiver guide.
In Nevada, where workers comp goes by industrial insurance, Nevada Revised Statutes 616A.210 makes the principal contractor the legal employer of its subcontractors, its independent contractors and everyone those businesses employ. Nevada Revised Statutes 616A.255 does define an independent contractor, controlled only as to the result and not the means, but the principal contractor rule reaches that person and their crew anyway.
The usual exit is the independent enterprise in Nevada Revised Statutes 616B.603: a person who holds itself out as a separate business and either holds a business or occupational license in its own name or owns, rents or leases property used in it. The statute closes that exit to principal contractors that hold a Nevada contractor license.
A second shelter, in Nevada Revised Statutes 616B.639, needs a written contract requiring the contractor's own industrial insurance, proof of it, different trades and a principal contractor not engaged in any construction project. That last condition typically rules it out for a GC.
Rating rules also count licensed sole proprietor and partner subs at a deemed monthly payroll, so ask the carrier how it reports each one.
What Nevada does give a GC is a way to close out a project. Under Nevada Revised Statutes 616B.645, a principal contractor may ask a sub's insurer whether the sub is insured, and after the project request a final certificate that the sub paid all premiums for it, which relieves the principal contractor of further premium for that project. The insurer has 60 days to act. The rest of Nevada's rules sit on the Nevada contractor workers comp rules page.
California presumes employment first. Labor Code 3357 treats anyone rendering service for another as an employee unless independent or expressly excluded, and under Labor Code 2775 the hiring entity must show the worker is free from control and direction, works outside the usual course of the hiring entity's business and runs an independently established business of the same kind.
For construction, Labor Code 2781 sets the ABC test aside when the contractor shows all seven conditions, including a written subcontract, a CSLB license for the work, a separate business location, authority to hire and fire and proof of financial responsibility. Status then turns on Labor Code 2750.5 and the Borello test, and 2750.5 requires a valid license for anyone doing licensed work to count as independent.
So the license number matters as much as the certificate. Licenses and exemptions are explained under California contractor workers comp rules.
At audit, what you called the sub matters less than what you can show for the dates of the work.
Build the rest of the file with the what to gather before a workers comp audit checklist, send subs the what to ask subcontractors for workers comp list, and see uninsured sub charges for what happens when proof is missing.
Illustrative scenario
A builder licensed in Arizona and Nevada uses the same drywall sub in both states. In Phoenix, a completed independent contractor agreement is on file with its carrier and the job matches it. In Henderson, the agreement does little: Nevada deems the sub's helpers the builder's employees, and a licensed builder can't use the independent-enterprise exception. So the builder collects the sub's Nevada certificate first and asks the sub's insurer for a final certificate at closeout. This example is illustrative only.
Signing the Agreement but Never Sending It
In Arizona, the bar on premium starts once the fully completed agreement is submitted to the carrier. One that sits in a job folder, skips a statement or lacks a signature gives the auditor nothing to apply. Send each to your carrier when the sub starts and keep proof of the date.
Owner rules, certificates and audit steps are covered across our workers comp guides.
Send your trade, state and payroll, and a broker reviews the request. If you would rather talk first, leave a number.
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Not on its own. A 1099 shows how you reported the payment, not which side of the line the person falls on. Arizona looks at control and any agreement submitted to your carrier, Nevada deems subs' crews the principal contractor's employees, and California presumes employment unless the sub is licensed and meets the construction exception.
Arizona Revised Statutes 23-902(D) lists eight statements, on exclusive work, licenses, contract pay, early termination, tools, timing, the payee name and separate operations, plus a disclosure that the contractor isn't entitled to workers comp from your business. Both sides sign and date it, and it counts once the completed agreement reaches your carrier.
Not as a licensed contractor. Nevada Revised Statutes 616B.603 makes the exception unavailable to a licensed principal contractor. For most licensed GCs, the sub's own industrial insurance is what keeps its crew off the GC's policy.
For licensed work, typically yes. Labor Code 2750.5 makes a valid contractor license a condition of independent status for anyone doing work that requires one, and Labor Code 2781 lists a CSLB license among its conditions. Check the license number before the sub starts.
Not necessarily. Under Arizona Revised Statutes 23-961(N), a sole proprietor sub may give up coverage in writing, with the sub and your carrier both signing and dating the waiver, and the hiring business then isn't liable for coverage or premium for that person.
Ask each sub's insurer, under Nevada Revised Statutes 616B.645, to certify whether the sub is insured and to tell you if it stops paying, then request a final certificate when the project ends. The insurer has 60 days to issue or deny it.
It depends on each state's test, not on the 1099. Workers comp insurance for independent contractors works differently in each state: Arizona looks at control and the written agreement, Nevada treats a licensed contractor's subs as its employees, and California presumes an unlicensed sub doing licensed work is an employee. A sub with its own policy and a current certificate naming your business gives the auditor the record it looks for. For the general contractor side, see general contractor workers comp insurance.
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Reviewed by David Gleason, Principal, on .
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The right paper on file decides whether a sub's crew lands on your audit.
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