Hiring 1099 contractors can be a great way to manage a flexible workforce for your construction business. But did you know that if you’re not careful, you could end up paying for their workers’ compensation? This common and costly mistake can happen to any business owner who doesn’t understand the “big catch.”
The Big Catch: Day Laborers vs. Subcontractors
Here’s the problem: when you hire someone on a 1099 basis, your insurance company assumes they’re a licensed and insured professional. If that’s not the case, they are legally considered day laborers—not subcontractors.
If a day laborer gets injured on your job site, your insurance company is on the hook for their medical costs and any other related expenses. This is why you might see an unexpected charge for workers’ comp on your bill.
How to Protect Your Business
The good news is, this costly mistake is completely preventable. Before a contractor ever sets foot on your job site, you need to verify their credentials.
Here are a few steps you can take to protect your business:
- Request Documentation: Always ask for proof that a contractor is licensed and insured.
- Don’t Pay Without It: Many construction companies have a strict policy: no documentation, no payment. This incentivizes contractors to provide what you need upfront.
- Be Proactive: It’s your responsibility to confirm that the people working for you are legitimate contractors, not day laborers.
Taking these steps ensures you’re working with true professionals and that your business is protected from unnecessary financial risks.
