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1099 subcontractors and workers' comp: what plumbers owe
A 1099 is a tax form. It doesn't settle who owes workers' comp. If a sub you hire has no policy of their own, your state may treat their crew as yours, and your premium audit will usually bill you for what you paid them.
Key takeaways
- A 1099 doesn't decide whether someone is your employee. Your state's workers' comp test does, and in construction that test is often stricter than the IRS test.
- If a sub has no workers' comp, many states make the contractor above them pay benefits when one of the sub's workers gets hurt.
- At your premium audit, money paid to a sub with no workers' comp certificate is usually counted as your payroll, at your plumbing rate.
- Before a sub starts, collect a certificate showing workers' comp and general liability, an additional insured endorsement, and a signed written agreement.
- If a sub has no comp, hold the job until they buy a policy, file a valid exemption, or go on your W-2 payroll.
Why 1099 workers comp trips up plumbing shops
Most plumbing contractors learn the 1099 workers comp rules the hard way. You pay a helper or a one-truck sub on a 1099, then the workers' comp audit shows up and adds their pay to your bill. Or worse, the sub's helper falls through a ceiling during a rough-in, and the claim lands on you.
The 1099 form only reports what you paid. The IRS says you weigh the whole relationship, and the label you use doesn't decide it.
Workers' comp is a state system. Each state sets its own test for who counts as an employee, and many are tougher on construction than on other work. This guide walks through those tests, the audit math, and the paperwork that keeps a sub's risk on the sub. It's general information, not legal advice. For a ruling on a specific worker, talk to an employment attorney or your CPA.
What's new for 1099 workers comp in 2026
Three things moved this year, and each one touches plumbers who use subs.
The 1099-NEC threshold went up. For payments made in 2026, you file Form 1099-NEC when you pay a non-employee $2,000 or more for services. The old line was $600.
A higher tax threshold doesn't shrink your comp exposure. A $1,500 drain-clearing sub may still show up on your audit.
The Department of Labor proposed a new contractor test. On February 26, 2026, the DOL proposed replacing its 2024 rule with a test that puts the most weight on control and on the worker's chance for profit or loss. As of this writing it's still a proposal.
That test covers federal wage and overtime law. It doesn't set your state's workers' comp rules.
California pushed back its comp-for-all rule. A 2024 law moved the date when nearly every California contractor must carry workers' comp, employees or not, from 2026 to January 1, 2028.
Employee or independent contractor: the tests that decide it
There's no single national test. Three sets of rules can apply to the same worker, and they don't always agree.
The IRS common-law test
The IRS looks at three groups of facts. Behavioral control asks who directs how the work gets done. Financial control asks who sets the pay and who buys the tools. The type of relationship looks at your contract and any benefits. It also asks if the work is part of your core business.
No one factor decides it, and the IRS posts its full guidance on worker status online. If it's unclear, you can ask the IRS to rule on Form SS-8, but the IRS says that can take six months or more.
Department of Labor guidance
The DOL uses an "economic reality" test for wage and hour law. The 2024 rule is still on the books while the 2026 proposal is pending.
Treat it as a second opinion on the same facts, not the answer for comp.
Your state's test (the one that counts for comp)
States write their own rules, and construction gets extra scrutiny. A few examples from states we're licensed in:
- California uses the ABC test. A worker is an employee unless you show they're free from your control, the work is outside your usual business, and they run an independent trade.
A plumber hiring a plumber fails the "outside your usual business" part on its face. California does carve out construction subs that meet a list of conditions, including a written contract and a CSLB license covering the work.
See California plumber insurance for the state's license and comp rules.
- New York presumes a construction worker hurt on the job is the contractor's employee. To count as a separate business, the sub has to meet all of a 12-part test.
More on the state in New York plumber insurance.
- Pennsylvania narrows who can be a construction contractor under its Construction Workplace Misclassification Act. The worker needs a written contract, freedom from your control, and an established business. That means their own tools, a separate business location, other clients (or the ability to take them), and at least $50,000 of liability insurance.
Statutory employer: when a sub's injury comes back to you
In many states, the contractor up the chain owes workers' comp benefits when a sub has none. Lawyers call this the statutory employer rule.
Here's how two states handle it:
- Florida: When a contractor sublets work, the law treats all the workers on that contract as employed in one business. The contractor has to secure comp for them unless the sub has its own coverage. It also has to ask each sub for proof of workers' comp.
Florida lets the contractor try to recover benefits it paid from the uninsured sub, plus interest. That only helps if the sub has money to collect.
For more, see Florida plumber insurance.
- Tennessee: A principal contractor can be liable for an injured worker of its sub to the same extent as the sub. The worker files against the sub first.
Example scenario: A plumbing shop subs out a commercial trim-out to a two-man crew. The crew's owner let his comp policy lapse in March. In April, his helper cuts a hand badly on a sheet metal edge. In a state with a statutory employer rule, the helper's claim may move up to the plumbing shop and onto its own workers' comp policy.
Don't count on general liability to fill this gap. GL and workers' comp are separate policies, and GL is built for injuries to the public and damage to their property. Check your policy's exclusions, and see general liability for plumbers for what it usually covers.
How uninsured subcontractors show up on your premium audit
Your workers' comp premium starts as an estimate. After the policy year ends, the carrier audits your books and bills or refunds the difference. Subs are where most 1099 workers comp surprises start. Our guide to workers' comp audits for plumbers covers the full process.
The rule auditors follow is plain. In the rating manual used in North Carolina, for example, a contractor has to show a certificate of the sub's workers' comp policy. Without it, the auditor adds premium on your policy for the sub's workers.
Many other states' manuals follow a similar rule, so ask your carrier how it applies in yours.
How much of the sub's bill counts as payroll
If the sub's payroll records aren't available, the auditor uses a share of what you paid. The table shows the minimums in the North Carolina manual.
| What the sub's invoice covered | Minimum counted as your payroll |
|---|---|
| Labor only | At least 90% of the subcontract price |
| Labor and materials | At least 50% of the subcontract price |
| Equipment with an operator | At least 33⅓% of the subcontract price |
| Piecework | 100% of the subcontract price |
| No records and no clear split | The full subcontract price |
That payroll gets the class code that would apply if the sub's workers were your own employees.
So an uninsured subcontractor on a labor-only sewer lateral job would usually rate like your own field work, not like office payroll. Invoices that split labor from materials keep the counted share closer to the real labor cost. Your actual bill still depends on your own payroll and class codes, plus your claims history.
What to collect from every subcontractor before day one
- A current certificate of insurance (COI). It should show the sub's own workers' comp and general liability, with policy numbers and dates that cover the whole job. Get it from the sub's agent, not as a forwarded PDF, and log the expiration date. Our guide to the certificate of insurance for plumbers explains how to read one.
- An additional insured endorsement. Ask the sub to add your business as an additional insured on their general liability, and ask for a copy of the endorsement. On most certificate forms, being listed as the holder doesn't add you to the policy by itself.
- A signed written agreement. It should require workers' comp where the law requires it, proof before work starts, new proof at renewal, and your right to back-charge any audit premium the sub causes. Have an attorney review the wording.
- Business proof and clean invoices. Keep a W-9, the sub's state plumbing license, and invoices that list labor and materials as separate lines.
When a sub has no workers' comp
Sooner or later a good sub tells you they don't carry comp. You have four honest choices.
- Hold the start date. The cleanest answer is "no certificate, no start." Many general contractors already run their job sites this way.
- Have them buy a policy or file an exemption. A sole proprietor with no employees may be able to buy a small policy or file a state exemption, depending on the state. In California, a plumbing contractor with no employees can file an exemption with the CSLB for now, but that option is scheduled to narrow sharply in 2028.
An exemption usually covers only the owner. It doesn't cover a helper they bring along.
- Put them on your payroll. If the person works only for you, uses your van, and follows your schedule, they may already be your employee under your state's test. Moving them to W-2 lines up your comp policy with your payroll. Check with your CPA first.
- Price in the audit charge. If you decide to use the sub anyway, expect their pay to land on your audit at your rates. Build that into your bid, and put the back-charge right in your written agreement.
Some subs offer an occupational accident policy instead. That covers their own injuries under its terms, but it isn't a workers' comp policy. An auditor looking for a workers' comp certificate may not accept it.
Getting your own comp policy right as you add subs
Your own policy matters as much as the sub's. As you grow from a one-truck shop to a crew with subs on commercial jobs, tell your carrier how much you pay subs each year. The estimate on your policy then reflects reality, and the audit is less likely to bring a big surprise. Our page on workers' comp insurance for plumbers covers class codes and how premiums are built in each state. If your first general contractor deal is coming, commercial plumbing contractor insurance explains what a general contractor will ask of you in turn.
We're an independent agency, so we can quote your comp with several carriers we work with and help you set up a certificate file for your subs. Start with a free, no-obligation quote.
The verdict on 1099 workers comp for plumbing contractors
The real 1099 workers comp question isn't the tax form. It's two things. First, whether your state's test says the person works for you. Second, if they don't, whether they carry their own comp on every day they're on your job.
If either answer is shaky, the cost may land on you, at audit or after an injury. Collect the certificate, the endorsement and the agreement before the first job, and recheck them at every renewal.
Frequently asked questions
Do I need workers' comp for 1099 employees?
What happens if a 1099 subcontractor gets hurt on my job?
Do you need workers' comp for 1099 workers in Pennsylvania?
What is the new 1099 rule for 2026?
Is a certificate of insurance enough proof that a sub has comp?
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