Why Not Collecting W-9s and COIs From Subcontractors Can Cost You Six Figures
Most contractors don’t get burned because of bad work, they get burned by missing paperwork they didn’t think mattered.
Two of the most important pieces?
W-9s and Certificates of Insurance (COIs).
Skipping them usually doesn’t cause problems right away. That’s what makes it dangerous.
The Common Mistake - “They’re a 1099, so they’re not my employee.”
That’s not how workers’ comp sees it.
If a subcontractor:
Doesn’t have their own workers’ comp
Can’t provide a COI
Works under your direction on your jobs
Workers’ comp can treat them as your employee, even if you paid them by 1099.
A Simple Financial Example
GC pays $600,000 to subcontractors during the year
No COIs on file
Workers’ comp audit happens
The worker’s comp carrier reclassifies that $600,000 as payroll.
With a typical construction workers’ comp rate of 12%:
Retroactive workers’ comp bill: $72,000 (on top of the amount you already paid throughout the year)
Then come payroll taxes now that they are being treated as an employee:
Employer payroll taxes (~7.65%): $45,900
Total unexpected cost: ~$118,000
This example excludes the liability risk of injury or a lawsuit, just a Worker’s Comp audit.
Why This Hurts So Much
These issues don’t show up when business is slow. They show up:
At year-end
During insurance renewals
When applying for bonding or financing
When cash is already tight
And once the audit is done, you can’t fix it retroactively.
The Bottom Line
Paying someone by 1099 doesn’t protect you. Documentation does.
If you can’t prove a subcontractor has their own workers’ comp, the risk shifts to you financially and operationally.
The Simple Rule
No COI. No payment. That one rule prevents most of these problems before they start.