Why an uninsured subcontractor becomes your payroll
Workers' compensation exists so that an injured worker gets covered by someone. When a subcontractor carries their own policy, that someone is their carrier. When they don't, the exposure falls back up the chain to the business that hired them — and the premium follows the exposure.
So at audit the question is narrow: did this person have their own workers' compensation coverage while they worked for you? If the answer is no, most states allow the carrier to treat what you paid them as your payroll, rated at your class code. How the relationship was structured, what the contract said, and whether you issued a 1099 do not change that answer.
How the premium is actually calculated
Workers' compensation rates are quoted per $100 of payroll, not as a percentage. This is the detail that trips people up by a factor of one hundred.
A rate shown as 7.50 on your declarations page means $7.50 of premium for every $100 paid. So $80,000 in payments to uninsured subcontractors works out to (80,000 ÷ 100) × 7.50 = $6,000, before your experience modifier is applied. A mod of 1.25 takes the same exposure to $7,500.
The rate varies enormously by class code. Clerical work might rate under a dollar; roofing can run into the tens of dollars per $100. That is why the calculator asks for your rate rather than assuming one.
What makes a certificate actually count
A certificate has to show workers' compensation coverage in the subcontractor's name, and it has to cover the dates they performed the work. Two failure modes account for most of the trouble:
- Collected too late. A certificate pulled today says nothing about whether someone was covered last October. The time to collect it is when they start work.
- Lapsed mid-job. A subcontractor whose policy expired in March is uninsured for everything after March. Someone has to own the expiry list.
What this calculator does not account for
It errs on the high side on purpose, treating the full payment as rateable payroll. In practice the charge can be lower. Where a subcontractor supplied materials or equipment rather than labor alone, some states rate only a portion of the contract price. Rules on sole proprietors without employees differ by state too.
Treat the result as the ceiling — the number worth knowing before an audit tells you. It is an estimate, not a quote, and your carrier's audit determines the actual charge.
Frequently asked questions
Do I pay workers' comp on subcontractors?
If the subcontractor carried their own workers' compensation coverage for the dates they worked for you, no. If they didn't, most states let your carrier treat what you paid them as your payroll and rate it at your class code. The deciding factor is the certificate of insurance, not how the relationship is structured or how you reported the payment to the IRS.
How is the additional premium calculated?
Payments to uninsured subcontractors are added to your payroll, then rated like any other payroll: divide by 100, multiply by your class code rate, and multiply by your experience modifier. Workers' compensation rates are quoted per $100 of payroll, so a 7.50 rate on $80,000 of exposed payments is (80,000 ÷ 100) × 7.50 = $6,000 before the mod is applied.
Where do I find my class code rate?
On your policy declarations page, listed next to each class code. It is expressed per $100 of payroll rather than as a percentage, so a rate shown as 7.50 means $7.50 of premium for every $100 paid. Your experience modifier is on the same page.
What makes a certificate of insurance valid for an audit?
It has to show workers' compensation coverage in the subcontractor's name and cover the dates they actually performed work for you. A current certificate does not prove coverage existed eight months ago, and a policy that lapsed mid-job leaves everything after the lapse date exposed. Collect certificates when you hire, not when the auditor asks.
Does a 1099 or a signed contract protect me?
Not for premium audit purposes. Issuing a 1099 answers a tax question and a contract answers a legal one; neither establishes that the person had workers' compensation coverage. You can be entirely correct under federal labor rules and still be charged premium on a subcontractor, because the tests are asking different questions.
Could the real charge be lower than this estimate?
Yes. This calculator deliberately errs high by treating the full payment as payroll. Where a subcontractor supplied materials or equipment rather than labor alone, some states rate only a portion of the contract price. State rules vary, and your carrier's audit determines the actual charge.
Preparing for an audit now? The audit checklist generator lists every document you'll be asked for, and what actually happens in a workers' compensation audit walks through the process end to end.