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Workers Comp Audit – Don’t make this mistake!

During  a routine final audit, the insurance company asks you for your 1099’s, right? Do you know the difference between a 1099 Subcontractor and a 1099 Vendor?  It can make a world of difference!

If you are a business, you have to issue a 1099 to anyone that you paid over $600. Well, if you have to turn in all of your 1099’s during a workers comp audit, do you have to pay workers compensation for that total amount? Simple answer, no.  There are 1099 Subcontractors (you may have to carry workers comp for or obtain certificates) and there are 1099 Vendors (that you do not have to).

It’s important to know the difference between the 1099 subcontractor vs a 1099 vendor when it comes to a workers compensation audits. Most carriers ask for the 1099’s for subcontractors and this can get complicated when an insured supplies all their 1099’s to the carrier. The carrier will not know the difference between a vendor and a subcontractor by just looking at the 1099’s and want you to pay premium for all the 1099’s submitted without proof of coverage, such as a certificate.

What’s the difference between a 1099 subcontractor and a 1099 vendor? Below are some definitions and examples:

1099 Subcontractor: A subcontractor furnishes a service under a prime contract. For example, when a general contractor is building a home and they hire a electrician to install the electrical work, the person installing the electrical equipment would be a 1099 subcontractor. Another example of a 1099 subcontractor is a painter who is hired by a business owner to paint their office space.

1099 Vendor: A Vendor sells similar or identical products to different customers as part of their operations. Examples include a produce vendor supplying fruits and vegetables to a grocery store or a office supply vendor supplying desks to an office.

The insured should be collecting certificates of insurance from all the subcontractors they use. If they do not collect the certificates at the end of their policy term they will have to pay workers compensation premium for all uninsured subcontractors used since it is their policy that could potentially have to pay for any injury sustained by the contractor on the job site. This potentially can be a very expensive mistake for any insured!

If you have any questions regarding the difference between a 1099 Subcontractor and a 1099 Vendor, please call Armstrong Fairway Insurance at (760)245-2561.


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