Will you get stuck for workers comp for your sub?
If you use subcontractors you need to be very careful with the workers comp issue, but that’s not all.
You are likely to be audited yearly by your workers comp carrier and it will be checking to make sure you paid a premium based on all of your employees. If the carrier identifies subcontractors it will be your burden to prove that the subcontractors had workers comp insurance or you will be charged additional premium for those workers. And that’s not the worst case scenario. If your subcontractor gets hurt on the job and doesn’t have his or her own workers comp, that injured subcontractor [or any of its injured employees] is going to make a claim to your workers comp carrier and that claim is going to be denied because the injured worker is not on your policy. The injured subcontractor will be able to sue you directly and you won’t have insurance.
And there’s more bad news. Federal income tax and other benefits you offer to your W2 employees. If your 1099 subcontractor is really not a subcontractor, but really an employee, that subcontractor-employee can claim benefits offered to your other employees and you could be held liable for failing to withhold income tax, social security and disability benefits.
More bad news. If you’re licensed and your employees need to be licensed, certified, documented, registered, or anything else, you better make sure your subcontractor is licensed and has properly licensed, certified etc. its employees, or that is also going to come back to bite you, you know where. You’ll be the one to get the license violation fines.
Subcontractors should be required to sign our Subcontractor Agreement (see web site www.krischenbaumesq.com ) [which calls for insurance and licenses]. If you have 1099 sales people they need to sign the Independent Sales Affiliate Agreement. (See web site www.kirschenbaumesq.com ) If you follow the requirements of the agreements you should be protected.
I do have one dilemma. What to do when your one man subcontractor tells you that a single man business doesn’t need workers comp. To be safe I think you should cover that sub under your policy even though paying him as a 1099 sub, or require him to get his own workers comp policy.
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
516 747 6700