How the workers' comp charge works
Workers' comp premium is a rate per $100 of payroll. In the many states that use NCCI's rating rules, uninsured subs fall under Rule 2-H of NCCI's Basic Manual. It says the contractor must furnish "satisfactory evidence that the subcontractor has workers compensation insurance in force" for the work. For each sub without that evidence, the carrier charges additional premium on your policy for the sub's workers. California, New York and several other states have their own rating bureaus and their own manuals, so details differ there.
The rule also sets how much of the sub's price counts as payroll, as a 2013 Tennessee order describing it explains:
- If you can produce the sub's complete payroll records, the carrier can use that payroll.
- Without them, the carrier can use the full price of the work done during your policy period.
- Job documents that show a definite labor amount can lower it, but not below minimum percentages of the price.
Carriers publish their own versions of those minimums. One example, from Builders Mutual's audit kit:
| What the uninsured sub's price covered | Share of the price counted as your payroll |
|---|---|
| Labor only | 100 percent |
| Labor and material, with the material cost broken out on the invoice | No less than 50 percent |
| Labor and material, with no material breakout | No less than 90 percent |
| Mobile equipment with operators | No less than 33⅓ percent |
These figures are one carrier's, not a national standard: the Tennessee order gives NCCI's labor-only minimum as 90 percent, and the carrier applied it. Builders Mutual wants the sub's original invoices to support the labor cost, and Nationwide will not accept breakdowns by percentage. Your carrier's audit guide and your state's manual control.
Two cases that went to the state
In the Tennessee case, a residential builder's sub had workers' comp certificates covering only two months of the builder's policy year. The builder had no payroll records for the sub, so the carrier worked from the builder's 1099 and checks. It charged $17,452 in additional premium for the ten uncovered months. The Department of Commerce and Insurance upheld the bill in 2013.
In Alaska, a general contractor had a certificate of insurance and a signed subcontract for a sub, but the sub carried no workers' comp. The carrier charged premium for the sub's work, and the Division of Insurance upheld the audit in 2022.
AmTrust's loss-control guidance warns that an uninsured or underinsured sub could raise your workers' comp premiums for many years, because your policy may end up paying a claim for the sub's injured worker.
What auditors accept as proof
The NCCI rule, as quoted in the Tennessee order, lists three documents:
- A certificate of insurance for the sub's workers' comp policy.
- A certificate of exemption, where the state issues one.
- A copy of the sub's workers' comp policy.
Florida's Division of Workers' Compensation lists similar proof: the policy's Information Page, a screen print from the state's Proof of Coverage database, or a certificate plus written documentation from the producer or carrier.
Carriers add their own checks. Builders Mutual's audit kit says:
- A binder or certificate with "TBD" or "TBA" as the policy number is not valid.
- Handwritten certificates are not accepted.
- The name on the certificate should match the name on your checks.
- The certificate should come from the sub's insurance agent.
A general liability certificate does not prove workers' comp; AF Group's audit FAQ says so plainly.
The date-span problem
A certificate proves coverage only for the dates printed on it. AmTrust's guidance says the effective and expiration dates must span the entire time the sub performed work; if the policy expires first, you need the renewal certificate too.
Two calendars overlap. Your policy year sets which payments the auditor examines; the sub's policy year sets what each certificate covers. A sub that works for you all year often needs two certificates in the file.
The usual failure is not a sub with no insurance. It is a certificate collected at onboarding for a policy that expired in month four. The sub may have renewed, but the file holds no proof, and the auditor sees eight months of payments with nothing behind them. If a sub's coverage has already lapsed, see what to do when a sub's COI expires mid-project.
Auditors start from your payments. Builders Mutual asks for each sub's payments by date and amount, and points QuickBooks users to the 1099 Detail Report. Tie each certificate to the work dates those payments covered.
Subs without workers' comp
Many small subs carry no workers' comp. What can stand in for a policy depends on the state.
Owner-excluded and "ghost" policies. The workers' comp row of an ACORD 25 asks whether any proprietor, partner, executive officer or member is excluded. A "Y" means at least one of them is not covered by that policy; the form asks for the details under Description of Operations. Arkansas regulators describe the "minimum premium policy" (often called a ghost policy) that an owner buys while excluding himself or herself: it is issued showing little or no payroll, and it is audited like any other. Owners who exclude themselves do not exclude their employees.
The certificate is for a real workers' comp policy, one of the documents the NCCI rule lists. It does not end every question, because the excluded owners are not covered. AF Group's auditors ask how a sub is paid, what work it does and who directs it, and a contractor found not to be independent is included in the audit as an uninsured sub.
State exemption certificates. These vary widely:
- Florida issues construction-industry exemptions to corporate officers and LLC members who own at least 10 percent of the business, up to three per company or group of affiliated companies. The exemption applies to the owners only, so a sub with employees still needs a policy. Keep a copy of the exemption or a screen print from the state's exemption search.
- New York's CE-200 is for government licenses, permits and contracts only. The Workers' Compensation Board says it cannot be used to show another business, or that business's insurance carrier, that coverage is not required. It will not satisfy your auditor.
- Arkansas's 2007 joint bulletin says a Certificate of Non-Coverage is not a waiver of workers' comp liability, and that it can be valid under one work arrangement and not another.
- California requires five license classifications to carry workers' comp (or be certified self-insured) whether or not they have employees: C-8 concrete, C-20 HVAC, C-22 asbestos abatement, C-39 roofing, and C-61/D-49 tree service.
State coverage lookups. Florida's Proof of Coverage database (with an exemption search), New York's "Does Employer Have Coverage?" search and California's WCIRB coverage inquiry show whether a policy is on file. California's site notes that changes from the past 60 days may not show yet. Save a dated screenshot.
The general liability side
GL audits look at subs too, in two ways.
First, the cost of subcontracted work can be part of your GL premium base. Penn National describes "total cost" as the premium base used primarily for general liability when subs are used. It includes all labor, materials and equipment used in the work, plus fees, bonuses and commissions. For insured subs, Builders Mutual uses the total amount paid, materials included.
Second, uninsured and underinsured subs cost more. Builders Mutual applies its workers' comp uninsured-sub rules on the GL side as well. Nationwide treats a sub as adequately insured only with at least $1,000,000 each occurrence, $2,000,000 general aggregate and $2,000,000 products-completed operations, for the period the work was performed. Lower limits mean a payroll charge on your audit.
Those thresholds are your carrier's audit rule, not your subcontract minimums, and they vary: Builders Mutual's minimum is $300,000 each occurrence and $600,000 aggregate. Ask your carrier for its number, and make sure your own requirements meet it.
A year-round routine that avoids surprise bills
- Before day one. Collect a certificate showing workers' comp and GL. Check the policy numbers, the dates against the planned work, and the insured name against the payee.
- Track every line's expiry. Workers' comp and GL can expire on different days. Ask for the renewal before each line runs out, not after. Builders Mutual suggests new certificates at each new project and at least quarterly.
- Handle no-coverage subs on purpose. Collect the state exemption document where one exists and save the lookup screenshot. Otherwise, decide before work starts whether you will require a policy or accept the audit charge.
- Get invoices that split labor and material. For any sub you cannot document as insured, that split can lower the share of the price charged as your payroll.
- Reconcile each quarter. Export payments by vendor. For each vendor, note the payment and work dates, and beside them each certificate's workers' comp and GL policy dates. A payment without coverage behind it is a gap: ask the sub's agent now for a certificate showing the policy in force then.
- At audit. Hand over the sub payment list, certificates sorted by policy period, exemption documents, screenshots and labor-split invoices.
- Check the bill. Compare every sub charged against your file. Send missing proof fast: Builders Mutual allows 15 days from the final audit billing. Accident Fund's audit guide adds: pay the undisputed part and be specific about the rest.
Where SubLien fits
SubLien does not run your audit, decide coverage, or tell you what your carrier will accept. It keeps the certificate record the audit asks for:
- Each coverage line on an ACORD 25 keeps its own expiry date, and renewal reminders follow the first line to run out. If you turn it on, reminders also copy the certificate's insurance agent.
- Replacement certificates link to the ones they replace, and earlier certificates stay on file with their own dates instead of being overwritten.
- A named reviewer records each review and its date. When a certificate marks workers' comp owners as excluded, the read flags it for that reviewer.
- Owners and admins can export every COI to CSV: vendor, insurer, policy number, limits, effective and expiry dates, each line's expiry, and the reviewer.
You still match payments to certificates yourself.
Common questions
Why was I charged workers' comp premium for a subcontractor?
Your carrier found no proof that the sub had its own workers' comp in force for your work. Under NCCI's rule, the sub's labor is then added to your payroll, and without payroll records the carrier can use the full price you paid or a minimum share of it.
What does a workers' comp auditor need from my subcontractors?
A list of subs with the date and amount of each payment, plus proof of each sub's coverage for the dates worked: a certificate of insurance, a state certificate of exemption, or a copy of the sub's policy. Carriers may also ask for invoices that split labor from material.
Does a general liability certificate count for the workers' comp audit?
No. As AF Group's audit FAQ puts it, general liability insurance does not provide workers' comp coverage.
Can the audit charge me for months after a sub's certificate expired?
The carrier can charge for the uncovered months. In a 2013 Tennessee case, a builder whose sub had certificates for only two months of the policy year owed $17,452 in additional premium for the other ten. Get the renewal certificate before the old policy expires.
Will my auditor accept a ghost policy or an owner-excluded certificate?
It can count: the certificate is for a real workers' comp policy, one of the documents the NCCI rule lists. But the excluded owners are not covered by it, and if the auditor finds the person doing the work is not independent, the payments can be charged as an uninsured sub.
Can a state exemption replace a workers' comp certificate?
Sometimes. NCCI's rule accepts a certificate of exemption where the state issues one, such as Florida's construction-industry exemption for owners. New York's CE-200 cannot be used with another business or its insurance carrier, so it will not satisfy your auditor.
How does a general liability audit treat subcontractors?
Carriers such as Penn National and Builders Mutual can use the total cost of subcontracted work, materials included, as a GL premium base. Uninsured subs, and subs with limits below your carrier's threshold, can be charged as if their labor were your payroll.
Primary sources
- NCCI Basic Manual, which contains Rule 2-H on uninsured subcontractors.
- Tennessee Department of Commerce and Insurance, BC Developers final order (2013), quoting Rule 2-H.
- Alaska Division of Insurance, Case H 22-01 (2022).
- Arkansas joint bulletin on Certificates of Non-Coverage (2007), on minimum-premium policies.
- Florida Division of Workers' Compensation: contractor brochure, employer FAQ and Proof of Coverage database.
- New York Workers' Compensation Board: CE-200 limits and coverage search.
- California: WCIRB coverage inquiry and CSLB workers' comp requirements.
- Texas Department of Insurance, filed ACORD 25 specimen, with the owner-exclusion box.
- Carrier audit guides: Builders Mutual audit kit, Nationwide premium audit, Penn National audit Q&A, AF Group audit FAQ, Accident Fund audit guide and AmTrust on uninsured subcontractors.