Workers’ compensation insurance often begins with an estimate. Your carrier estimates payroll and the types of work your employees perform, applies the appropriate classification rates and other rating factors, and calculates an initial premium. But for many businesses—especially contractors that use subcontractors—that first number may not be the final number.
The workers’ comp audit is where the estimate meets the books
At the end of the policy period, the insurance company may audit actual payroll, worker classifications, and records supporting who performed the work. If your accounting records are incomplete or subcontractor documentation is missing, the audit can create an expensive surprise.
“But they were 1099 subcontractors.”
Paying someone on Form 1099 does not, by itself, settle the workers’ compensation question. In Florida, contractors have specific responsibilities concerning subcontractors and workers’ compensation coverage. Depending on the facts, missing proof of required coverage or a valid exemption can create additional exposure.
Good bookkeeping is part of workers’ comp risk management
Your accounting system should make it easy to identify who was paid, how much was paid, what type of work was performed, whether the payee was treated as an employee or subcontractor, and what insurance or exemption documentation supports that treatment.
Build the subcontractor file before work starts
- Collect the appropriate certificate of workers’ compensation insurance when required.
- Keep documentation of a valid workers’ compensation exemption when applicable.
- Verify coverage or exemption information using Florida’s official resources when appropriate.
- Keep subcontractor payments clearly identified in your bookkeeping system.
- Retain contracts, invoices and supporting records so the audit does not become an accounting scavenger hunt.
The lesson for business owners
A low estimated premium can look attractive at the beginning of the year. What matters is whether the estimate is supported by what actually happened during the policy period. Clean books and organized subcontractor files can make the audit easier and help you understand and challenge unexpected adjustments when appropriate.
Need help getting your business books organized? Call or text CPA Tony. Good accounting is not only about filing the tax return—it helps you manage the business all year.
General educational information only. Workers’ compensation requirements and insurance rating depend on the facts and applicable law. Consult the appropriate insurance or legal professional for your specific situation.