The 1099 is a federal tax reporting form. On its own it doesn’t tell a state workers’ comp board who is an employee; the tests look at who controls the work, and in some states and trades they start from the presumption that the worker is yours. Even a sub that passes the test can land on you: in states such as Florida and Georgia, a contractor is liable for the injured workers of a sub below it that has no coverage, and at audit, payments to uninsured or unlicensed workers reported on a 1099 can be counted as payroll. The practical answer is to decide classification before the job starts, collect a certificate of insurance from every sub with employees, and put the people who don’t pass the test on your own policy.
The 1099 doesn’t decide it
A Form 1099 tells the IRS you paid someone without withholding. On its own, it doesn’t tell a state workers’ comp board the person wasn’t your employee. Each state has its own test. The two below turn on who controls how the work gets done, and both presume an employee until the hiring business proves otherwise.
- New York presumes that a worker injured on or after October 26, 2010, while performing services for a contractor in construction is that contractor’s employee for workers’ comp purposes. To rebut it, the contractor must show the person is free from its control and direction, works outside its usual course of business, and is engaged in an independently established trade, occupation or business similar to the service performed.
- California presumes that a worker doing work that requires a contractor’s license, or doing it for someone who must hold one, is an employee, and that worker needs a valid contractor’s license to be treated as an independent contractor. My California page covers the rest.
The contract and the 1099 are evidence, not the answer. Direct how the work gets done and expect a board or auditor to look hard at it.
If a sub is uninsured, the contractor above it can pay
Hiring a legitimate subcontractor doesn’t end the question. Some states make the contractor above an uninsured sub responsible for that sub’s injured workers. Two I read in the statute text, and one state that works differently:
- Florida (s. 440.10): when a contractor sublets any part of its contract work, the contractor is liable for, and must secure, compensation for all employees on that work except those of a subcontractor who has secured it. It also says a contractor shall require a subcontractor to provide evidence of workers’ compensation insurance.
- Georgia (O.C.G.A. 34-9-8): a principal, intermediate or subcontractor is liable for compensation to any employee injured while working for one of its subcontractors on the subject matter of the contract, to the same extent as the immediate employer. It applies only to injuries on or about premises the principal contractor works on or controls, and whoever pays can recover from the party otherwise liable.
- Texas works differently: private employers can choose whether to carry workers’ comp at all. An employer that goes without has to report that to the state, report injuries with more than one day of lost time, illnesses and deaths, and gives up the liability limit coverage provides if an employee sues.
So the real question isn’t “is this person a 1099?” It is “if they or their worker gets hurt on my job, who pays?” With an uninsured sub in Florida or Georgia, the answer can be you.
What the premium audit does with 1099 payments
Workers’ comp premium depends largely on payroll, and the carrier audits actual payroll at the end of the policy year. California’s State Compensation Insurance Fund says payments to uninsured or unlicensed workers that you report on Form 1099 may be subject to premium and included in the audit as payroll, and if you can’t produce a sub’s certificate at audit and the sub holds no valid license, State Fund may treat the sub as your employee and charge premium. New York’s Workers’ Compensation Board describes the same practice: carriers often charge general contractors premium for every sub on the job site unless the subs furnish proof of their own policy.
Three habits help you answer the auditor:
- Collect a certificate of insurance from every sub that has employees before they start, and keep it in the job file. What a certificate shows and what it doesn’t.
- Keep proof of the sub’s license where the trade requires one. In California, an unlicensed person doing work that requires a contractor’s license is an employee for workers’ comp purposes.
- Keep a one-person sub’s business records. For trucking, State Fund says its auditor may ask for a list of payments to drivers, USDOT numbers, DMV registrations, the number of trucks you own and driver lease agreements.
Four states where the policy comes from the state
In North Dakota, Ohio, Washington and Wyoming, private insurers can’t cover workers’ compensation for in-state workers. Washington’s risk management office calls the four “monopolistic” states; coverage comes from each state’s fund, and Washington also allows certified self-insurance. The classification question doesn’t go away there, and a sub’s proof of coverage comes from the state fund. Notes by state.
What misclassification costs when a state catches it
Getting it wrong costs more than back premium. Two examples:
- Florida (s. 440.107): when the Department of Financial Services finds an employer failed to secure required compensation, that is grounds for a stop-work order, with a $1,000 penalty for each day the employer keeps operating in violation of it. The penalty for the failure itself is two times the premium the employer would have paid at approved manual rates for uncovered periods within the preceding 12 months, or $1,000, whichever is greater; repeat cases look back 24 months.
- California (Labor Code 226.8): willful misclassification, meaning voluntarily and knowingly misclassifying someone as an independent contractor to avoid employee status, carries a civil penalty of $5,000 to $15,000 per violation, and $10,000 to $25,000 per violation as part of a pattern or practice.
These come on top of the claim itself. The fix is to settle classification before the job starts, collect the sub’s certificate, and put the people who don’t pass the test on your own policy. How a workers’ comp policy is built and the rest of a contractor’s program.
Common questions
Does giving someone a 1099 make them an independent contractor?
Not by itself. The 1099 is a tax reporting form. State workers’ comp boards apply their own tests, mostly about who controls the work, and some presume employee status: New York for workers performing services for a construction contractor, California for anyone doing work that requires a contractor’s license.
What if my subcontractor has no employees and no policy?
If that person fails your state’s test, they are your employee for workers’ comp. At audit, California’s State Fund says payments to uninsured or unlicensed workers reported on a 1099 can be counted as payroll, and without a certificate or a valid contractor’s license the sub may be treated as your employee.
Can I require my subs to carry workers’ comp?
Yes. Florida’s statute says a contractor shall require evidence of it, and New York’s Board notes that general contractors routinely ask subs for proof. Collect the certificate before work starts, keep it in the job file, and expect your auditor to ask for it.
Is Texas different?
Yes. Private employers in Texas can choose not to carry workers’ comp, but an employer that goes without has to report that to the state, report injuries with more than one day of lost time, and gives up the limit on liability that coverage provides if an employee sues.
I work in Ohio or Washington. Can a broker place my workers’ comp?
Not there. In North Dakota, Ohio, Washington and Wyoming private insurers can’t write it; coverage comes from the state fund, and Washington also allows certified self-insurance. Operations in other states are placed separately.
Sources
- Florida Statutes s. 440.10 (Online Sunshine): liability for compensation; contractors and subcontractors
- Florida Statutes s. 440.107 (Online Sunshine): stop-work orders and penalties for failure to secure compensation
- California Labor Code 2750.5 (California Legislative Information): presumption of employment for license-required work
- California Labor Code 226.8 (California Legislative Information): civil penalties for willful misclassification
- New York Workers’ Compensation Board: identifying an independent contractor
- O.C.G.A. 34-9-8, statute text as reproduced by FindLaw: liability of principal, intermediate or subcontractor
- Texas Department of Insurance, Division of Workers’ Compensation: information for employers
- State Compensation Insurance Fund (California): employment status and your audit
- Washington Department of Enterprise Services, Office of Risk Management: out-of-state workers’ compensation FAQ (monopolistic states)
- Washington Department of Labor & Industries: workers’ compensation insurance requirements
General information about workers’ compensation classification and subcontractor liability as of October 2026, not legal or tax advice; each state’s workers’ compensation statute and its board’s decisions control. Coverage depends on underwriting and the terms, conditions and exclusions of the policy actually issued.