Hiring 1099 Subcontractors - Insurance Traps

Quick Answer

Under California Labor Code §2750.5, a 1099 subcontractor is presumed to be your employee for workers' comp purposes — unless the sub has their own active WC policy AND provides you with a current Certificate of Insurance. If the sub gets hurt without proof of their own WC, your WC policy covers the claim and your premium goes up at audit. Call (858) 925-9555 for sub management help.

The §2750.5 Presumption

California law presumes that anyone performing services for you is your employee — putting the burden on you to prove otherwise. For workers' comp purposes, the only safe way to break that presumption: collect a current COI from every sub showing active WC coverage from a California-admitted carrier.

What Happens If You Don't Collect COIs

• The sub gets hurt — your WC policy pays the claim
• At your year-end audit, the auditor adds the sub's payroll to YOUR rated payroll at your class rate
• Your future X-Mod includes the claim
• You may also face California Labor Commissioner penalties for misclassification

How to Manage Subs Properly

1. Before any sub works, collect a COI showing:
2. Active WC policy
3. Effective dates covering the project
4. California-admitted carrier
5. Your business as certificate holder (not required but recommended)
6. File the COI digitally
7. Re-verify if the project runs longer than the policy effective end date
8. If the sub can't provide a COI, treat them as your employee and pay them on payroll

AB 5 — Different Test, Different Issue

Assembly Bill 5 (the "ABC test") applies to wage and hour classification. The §2750.5 presumption is workers'-comp-specific. For wage/hour purposes, see our AB 5 guide.

Related: Workers' Comp Audit · AB 5 Guide