When a sub has no workers comp, state law in California, Arizona and Nevada can make the hiring contractor answer for that sub's injured workers, so carriers often add what you paid the sub to your audited payroll. Collecting a current certificate and license number before the sub starts is the main way to keep that charge off the bill.
Every Crew Deserves a Crown
Questions about your own policy? Call and talk it through with a licensed broker.
A carrier prices your policy on the people it may have to pay for. If a sub's carpenter falls from a ladder and that sub has no workers comp, the injured worker may look up the chain to you, and the claim can land on your policy. Carriers account for that risk at audit: payments to a sub with no proof of its own policy are often treated as payroll on your policy and rated under the classification that matches the sub's work.
How much of the payment is counted, and whether materials can be separated from labor, depends on the carrier's audit practice and the invoice you can show. Ask the carrier before the job, not after the bill, how it handles a sub with no proof of coverage. Whether a sub is treated as your employee in the first place is explained in when a sub counts as your employee.
| State | Rule | What It Means for a GC | Source |
|---|---|---|---|
| California | Unlicensed workers on licensed work | Someone doing work that needs a contractor license, without holding one, is presumed to be an employee of the contractor who hired them. | Labor Code 2750.5 |
| Arizona | Statutory employer | A sub and its workers can count as your employees when you keep supervision or control and the work is part of your trade. | Arizona Revised Statutes 23-902 |
| Arizona | Written audit findings first | The carrier may not charge premium on alleged statutory employees until it has given written audit findings. | Arizona Revised Statutes 23-961 |
| Arizona | Sole proprietor waiver | A sole proprietor working as an independent contractor may sign a waiver; the sole proprietor and your carrier both sign and date it. | Arizona Revised Statutes 23-961 |
| Nevada | Principal contractor | The principal contractor stands as employer for its subs, independent contractors and their crews. | Nevada Revised Statutes 616A.210 |
| Nevada | No independent-enterprise exception for licensed contractors | That exception does not apply to a principal contractor licensed under the state's contractor licensing chapter. | Nevada Revised Statutes 616B.603 |
California. The question that matters most is whether the sub holds a valid contractor license. Under Labor Code 2750.5, a worker without a license who does work requiring one is presumed to work for the hiring contractor as an employee, whatever the paperwork calls them. A licensed sub with its own policy in force usually stays off your payroll; an unlicensed one paid by 1099 often does not. License and exemption details sit with the California contractor workers comp rules.
Arizona. The statutory employer rule looks at control and at whether the work is part of your trade, not at the label on the contract. Arizona also gives the hiring contractor two tools: a sole proprietor waiver signed by both the sub and your carrier, and the requirement that the carrier put its audit findings in writing before charging premium on workers it calls your statutory employees. The Arizona statutory employer rule page covers how the test works.
Nevada. Industrial insurance in Nevada puts the principal contractor in the employer's seat for subs and their crews, and a contractor licensed in the state cannot fall back on the independent-enterprise exception. Nevada's rating rules also set deemed payroll for some sole proprietor and partner subs; ask the carrier how that applies to the subs on your jobs.
The workers comp certificate of insurance guide explains what a certificate does and doesn't prove, and why some contracts add a waiver of subrogation on top.
A list you can send to each sub is on the subcontractor workers comp certificate requirements page.
Illustrative scenario
A California remodeler hires a licensed tile sub and an unlicensed handyman for trim work. The tile sub sent a certificate at the start, but its policy lapsed two months into the job and nobody asked for a new one. At audit, the handyman's pay is presumed to be payroll under Labor Code 2750.5, and the carrier may also count the tile sub's payments after the lapse. A current certificate from the tile sub and a licensed trim carpenter would likely have kept both off the bill. This example is illustrative only.
Treating a 1099 as Proof of Coverage
Paying a sub on a 1099 says how you paid them, not whether they carry workers comp. Without a certificate for the dates of the work, the auditor has no proof, and in California an unlicensed sub may be presumed your employee no matter how the payment was reported.
Certificates, owners and payroll records each have their own page among the workers comp questions answered. Gather the rest of the audit papers with what to gather before a workers comp audit.
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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Because the law in your state may make you answer for that sub's injured workers when the sub has no workers comp of its own. Without a certificate showing coverage for the dates of the work, carriers often count the payments to that sub as payroll on your policy at audit.
Not by itself. Labor Code 2750.5 treats someone without a contractor license, doing work that requires one, as presumptively your employee. Holding a valid license of their own is what changes that. A 1099 records the payment; the license and the sub's own coverage are what an auditor looks for.
Arizona Revised Statutes 23-961 says premium may not be charged on alleged statutory employees until the carrier first provides written audit findings. If a bill includes those charges without findings, ask the carrier for them in writing before you pay that part.
Often, yes. Nevada law deems the crews of a principal contractor's subs and independent contractors to be its own employees for industrial insurance, and the independent-enterprise exception is closed to contractors holding a Nevada license. Collect proof of each sub's industrial insurance before the work starts.
Payments for work after the expiration date may be counted on your policy, even if the sub's coverage was fine at the start. Ask the sub for a certificate showing its renewal or new policy, and send it to the carrier with your audit records.
Sometimes. If the sub did have coverage, send the carrier a certificate or policy information showing it was in force on the dates of the work, along with the payment records. If the carrier won't change the bill, the workers comp premium audit dispute guide covers the next steps.
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Collect the certificate before the sub starts, and the audit has less to argue about.
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