Understanding Workers’ Compensation Audits and 1099 Labor Charges
Hi, my name is Matt Rogers with CRS, Contractors Risk Solutions. I hear A common question from construction companies: “Why do I have this big audit bill, and why am I being charged for my 1099 labor?” Over the years, I have seen countless construction companies charged thousands, if not hundreds of thousands, of dollars on their workers’ compensation audit because they could not verify that their 1099 workers were independent contractors.
The Root of the Issue: Are Your 1099 Workers Truly Independent Contractors?
At the end of the day, if your insurance company cannot verify that your 1099 workers are independent contractors, they will classify them as employees. This means that if a 1099 worker gets injured on the job and does not have their own workers’ compensation insurance, your policy will be responsible for covering their claim. This often leads to unexpectedly high audit bills, making this one of the most frustrating and confusing aspects of workers’ compensation insurance.
How to Avoid Costly Mistakes with 1099 Workers
If you 1099 workers to perform tasks for your construction business, you need to be aware that you could be charged for their workers’ compensation coverage if they do not meet the criteria of an independent contractor. To prevent this costly mistake, ensure that anyone you hire as a 1099 worker:
- Is a licensed contractor in their trade
- Carries their own general liability and workers’ compensation insurance
- Provides proof of insurance coverage before starting work
Many construction companies have a strict policy of not paying 1099 workers until they provide proper documentation. This proactive approach can protect your business from unexpected audit charges.
The Catch: Why Insurance Companies Charge You for 1099 Labor
The key issue is that many 1099 workers are not truly independent contractors. If they are unlicensed or uninsured, the insurance company considers them to be day laborers rather than subcontractors. Since they are working under your contractor’s license, you are responsible for their injuries if an accident occurs. Your insurance company will include these workers in your payroll calculation during an audit, leading to significant additional charges.
How to Protect Your Business from Unexpected Audit Bills
To avoid costly surprises, take these steps:
- Require proper documentation from all 1099 workers before they begin work
- Verify their licensing and insurance coverage
- Implement strict payment policies to ensure compliance
- Regularly review your audit reports to catch any misclassifications early
Need Help? Let’s Talk
I hope this information helps you avoid unnecessary expenses and frustration during your next workers’ compensation audit. If you have any questions or concerns about your audit, I’ve seen all kinds of situations and would be happy to help. Feel free to contact me anytime. Also, check out my YouTube channel for more insights on protecting your construction business from unexpected costs.
Thanks for reading!
