As a contractor in New York, understanding workers’ compensation insurance is critical to protecting your business from financial disaster. Hiring 1099 workers, day laborers, or paying employees in cash all carry potential risks that can affect your coverage and bottom line, especially during an insurance audit. This article will answer key questions about workers’ compensation insurance and explain how to protect yourself from costly mistakes.
Are 1099 Workers Covered Under Workers’ Compensation in the Event of an Injury?
The short answer is: it depends. If you hire an independent contractor (1099 worker) who truly operates as an independent business—meaning they have their own insurance, work for multiple clients, and provide their own tools—they may not be covered under your policy.
However, if a 1099 worker is injured and it is determined they were functioning more like an employee (i.e., working exclusively for you, using your equipment, or taking direction like an employee), they may be entitled to workers’ compensation benefits under your policy. The New York Workers’ Compensation Board (WCB) and your insurance carrier will assess the nature of the working relationship to determine liability.
How Will 1099 Payments Be Handled During an Audit?
When your workers’ compensation policy is audited, your insurer will examine all payments made to workers. If you paid 1099 workers who should have been classified as employees, their wages may be included in your premium calculation, leading to additional charges.
To avoid surprises, ensure that independent contractors provide proof of their own workers’ compensation insurance. If they don’t, you may be held responsible for covering them, which can lead to higher costs.
Are Day Laborers Covered If They Get Injured?
Yes, day laborers are considered employees for workers’ compensation purposes, even if they work only one day. If a day laborer is injured, they are entitled to workers’ compensation benefits, and your insurance policy is expected to cover the claim.
How Will Day Laborer Payments Affect an Audit?
During an audit, any payments made to day laborers will likely be counted toward your payroll total, which determines your final premium. If you failed to include these wages when purchasing your policy, expect to pay additional premiums.
What Happens If I Pay Workers in Cash and They Get Injured?
Paying workers in cash does not exempt you from workers’ compensation obligations. If a cash-paid worker is injured, they can file a claim, and you could be held liable for medical expenses and lost wages. The WCB does not care how wages were paid—only that they were paid.
How Will Cash Payments Be Handled in an Audit?
At audit time, if you cannot provide proper documentation (such as payroll records or 1099 forms), the auditor may estimate your payroll based on job size, industry standards, or other available data. This can result in substantial additional charges.
What Will a State Workers’ Compensation Plan Say About Hiring 1099s, Day Laborers, and Cash-Paid Workers?
If you have workers’ compensation through the New York State Insurance Fund (NYSIF) or another state plan, they will be very strict about proper worker classification.
- 1099s without proof of their own coverage will be considered employees.
- Day laborers will be covered as employees.
- Cash payments will be scrutinized, and undeclared wages can lead to penalties or policy cancellation.
State plans often require extensive documentation to ensure compliance, so keeping accurate records is essential.
What Will a Private Workers’ Compensation Insurance Company Say About Hiring 1099s, Day Laborers, and Cash-Paid Workers?
Private insurance carriers generally follow the same classification rules as the state fund but may enforce them differently. Some companies may refuse coverage if they find unreported payroll or misclassified workers, while others may charge hefty additional premiums.
If a private insurer determines that you are not following proper classification guidelines, they may:
- Adjust your policy to reflect higher payroll.
- Increase your renewal premium.
- Cancel or non-renew your policy due to misrepresentation.
What Can I Do If My Workers’ Compensation Insurance Company Is Raising My Renewal Premium or Non-Renewing Me Due to Claims?
If your insurance company is drastically increasing your premium or non-renewing your policy due to claims, you still have options:
- Shop for Alternative Coverage – Not all insurers treat claims history the same way. A broker specializing in high-risk accounts may find you a better option.
- Review Your Claims History – Make sure all claims were handled properly and negotiate reserves if possible.
- Implement Safety Programs – Carriers are more willing to work with companies that have clear safety procedures and risk management strategies.
- Consider a Captive or PEO (Professional Employer Organization) – These options can provide coverage alternatives that may be more cost-effective.
Need Workers’ Compensation Help? Contact the Experts at BGES Group!
Workers’ compensation insurance is complex, especially in New York’s construction industry. Hiring 1099 workers, day laborers, or paying employees in cash can create serious risks if not handled properly.
BGES Group specializes in helping contractors navigate the workers’ compensation system and find affordable, reliable coverage. If your current insurer is increasing rates or canceling your policy, we can help you secure new coverage that meets your needs.
Contact Gary Wallach today! 📞 Phone: 914-806-5853
📧 Email: bgesgroup@gmail.com
🌎 Website: www.bgesgroup.com
Don’t wait until it’s too late—get the right coverage today and protect your business from costly mistakes!