Subs and Workers Comp — Avoiding the Hidden Costs

Workers comp costs have skyrocketed in recent years. Since premiums for this type of insurance are based on total payroll, builders everywhere are reducing the number of workers they employ directly in favor of using more subcontractors. The tax consequences of hiring a sub whom the IRS considers to be your employee are well known — you may end up paying the sub’s federal withholding and social security taxes. But hiring a sub who does not carry his own workers comp insurance can be just as costly. Yet many builders who use subcontractors often end up paying workers comp premiums as if the subcontractors were employees. This usually happens during the insurance company’s annual payroll audit. Certificates of Insurance Workers comp premiums are calculated as a percentage of