This is an area where business owners have some confusion.  How to handle workers compensation when you hire a 1099 subcontractor.  There has to be workers comp in force whenever you are exchanging money for labor.

Employers can hire workers as an employee, or as a subcontractor. I would encourage you to consult an accountant when deciding how to pay for your labor.  There are very specific qualification that need to be met if you are going to sub out work.

If you do hire a subcontractor, it’s your responsibility as a business owner to ensure there is workers comp in force at the time of a job.  There are two ways to satisfy this.

1.  You can have the subcontractor provide proof of their own workers comp policy.
2. You can provide the coverage for them

If you hire a sub, and they don’t have workers comp in force, this will be flushed out in your annual payroll audit.  A question on the audit is, “Did you hire subcontractors”.  If you say “yes”, you have to provide proof through certificates of insurance.  If you can’t provide them, you will end up being charged for their payroll on your audit.  This can be a heavy expense depending on your business and how much you paid them.

Make sure you get this one right. It’s a pricey lesson to learn if you misstep.

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