1099 not insured - Contractor Talk - Professional Construction and Remodeling Forum

Grumpy · 07-26-2006, 01:08 PM

Ok many of you may remember about 6 months ago I was considering making the switch of insurance companies. Not it is official I am going to switch 100%. So I have been interviewing several insurance brokers in my area. Of coarse they all ask how many employees etc...

Well I told them "I have 4 full time employees, not counting myself and the 2 part timers I pay 1099. "

Today one guy said to me that "they are subs", I said "technically yes but I will be picking up their insurance." He said "If anything happens to them, they will not be covered." I said "But I will pay for them." He said "it doesn't matter."

So the insurance company will take my money to insure these two guys to work on an as needed basis, a day here a day there, but if anything happens to them they will not actually live up to their responsibility and actually insure these guys.

Doesn't that sound like legalized thievery? aat very least any business owner/manager that has this kind of policy has made a very very poor decision.

I only bring this up to you guys because you might want to check your own policies. It seems like this rule defies all laws of logic and ethics, yet the insurance companies are obviously getting away with it. Honestly the more I deal with insurance companies the more I understand why soooooo many cheat.

**Double-A** · 07-26-2006, 02:27 PM

Grumpy, take the approach of a 3 year old and start asking, "Why?".

The insurance company will not cover these folks for good reason, not just to be bandits or thieves (I'd like to think), so ask them why, if you have purchased insurance for them, will they not be covered in the event of a claim.

Grumpy · 07-26-2006, 02:35 PM

Of coarse I ask why, and ofcoarse I get the canned answers. The answer is simple in my mind. it's a way for them (the insurance companies) to maximize revenue and minimize risk. It's a great strategy in my opinion... but worthless to me as an insurance buyer.

**Double-A** · 07-26-2006, 03:18 PM

Quote:

Originally Posted by Grumpy

it's a way for them (the insurance companies) to maximize revenue and minimize risk. It's a great strategy in my opinion... but worthless to me as an insurance buyer.

Of course its not worthless to you, just inconvenient. If they didn't maximize revenue and minimize risk, they'd be the highest priced worthless insurance company out there.

OK, so what was the canned response?

Debookkeeper · 07-26-2006, 04:17 PM

Grumpy - what kind of insurance are you talking?

maj · 07-26-2006, 05:58 PM

The way I've always understood it is if you are paying 1099, they are subs, and responsible for their own insurance and taxes. They have to have their own seperate policy. If you want to pay the premium, that's fine.

There's a fine line (legally) on how to handle paying "employees" that way. I did it for a while, but I consulted my attorney first and checked all the tax laws.

Debookkeeper · 07-26-2006, 08:21 PM

Maj - this is very true. Someone I knew who was handling a few of his "employee's" as subs with 1099's, fired one of these guys. Well, he went to unemployment and boy did he open a can of worms. As you can imagine the state department of labor audited all his records, and he had to pay back payroll taxes, penalties and fines. This is a line that I never recommend anyone walk.

maj · 07-26-2006, 08:36 PM

First of all, you can't "fire" a 1099 "employee". You have to tell them, "I'm sorry, but I don't have anymore work for, good luck on your own."

Second, the "employee" should have known he can't draw unemployment, because he is self-employed (legally).

**Double-A** · 07-26-2006, 10:01 PM

I think the rubber is about to meet the road.

Shellbuilder · 07-26-2006, 10:29 PM

The insurance agents are telling you what IRS, your state and your unemployment office should have already told you about making up your own rules about who has witholdings and who doesn't. It all gets straight once your 1099ers fall and their famlies sue you for everything you have and will ever have to pay for a drooling family member unable to go to the bathroom on their own.

**Double-A** · 07-26-2006, 10:48 PM

Quote:

Originally Posted by Double-A

I think the rubber is about to meet the road.

Houston, we have touchdown!

I still want to hear what the insurance company's canned response was, Grumpy.

IHI · 07-27-2006, 07:14 AM

I ran into this situation last winter when I was hiring snow plowing subs, had a good friend that wanted extra work but he had previously dropped his liability insurance since it costs quite a bit and he did'nt plan on plowing much....until I called LOL!! So I called my agent to see if I could cover him under my policy just for snow removal and my agent was good enough to tell me of all the things that could go wrong in different scenario's and all wind up with me paying for coverage and then not getting covered.

So, I just ended up having him re-start his liabilty coverage and i wrote a check to reimburse him for the coverage then went on business as usual paying him a 1099. Either way 1099 employee's have no recourse for work man's comp, or umemployment, they are their own employeer, so if you cover your end legally there can be no legal recourse against you later should the unforseen happen and the guy/s get shadey on you.

You can pay, but we wont cover.....sounds like a typical insurance policy to me no matter what is being covered....ins. biggest legal scam this country has ever seen. If it was sunny-your not covered, if it was cloudy-your not covered, it happened on Tues., we dont cover on tuesday, etc....they can kist 2 million reasons to stop from paying/covering.

Debookkeeper · 07-27-2006, 07:17 AM

[quote=maj]First of all, you can't "fire" a 1099 "employee". You have to tell them, "I'm sorry, but I don't have anymore work for, good luck on your own."

Second, the "employee" should have known he can't draw unemployment, because he is self-employed (legally).[/QUOTE

That was my whole point. This person was treating his employees as subs. The guy was not legally self-employed. So it doesn't matter what this employee should have known - it matters that he didn't give a

whether or not he got the owner is trouble. All I was trying to state is the fine line some contractors walk between employee and 1099 Sub.

Grumpy · 07-27-2006, 07:39 AM

Quote:

Originally Posted by Debookkeeper

Grumpy - what kind of insurance are you talking?

Workmans comp. The company specifically I spoke with was American Family Insurance. He said the policy is specifically written that anyone NOT a w2 employee is NOT covered by the policy.

Grumpy · 07-27-2006, 07:41 AM

Quote:

Originally Posted by maj

The way I've always understood it is if you are paying 1099, they are subs, and responsible for their own insurance and taxes. They have to have their own seperate policy. If you want to pay the premium, that's fine.

There's a fine line (legally) on how to handle paying "employees" that way. I did it for a while, but I consulted my attorney first and checked all the tax laws.

All my full time every day guys ARE w2 employees. I only 1099 those guys who work a day here and a day there as needed. I do want to pay the premiums on these guys, however even though I can and will have to pay the premiums on these guys they still will not be covered by the policy if something were to happen.

So I pay but get nothing in return. So the point here is this... I can understand a company wanting to limit their liability and have a policy that a 1099 not be covered by the policy. I can live with that. HOWEVER if this is the case, then I should not have to pay their premiums.

maj · 07-27-2006, 07:44 AM

Yeah Bookie, I wasn't disagreeing or argueing. I was just adding to what you said. First statement was in ref. to the employer. Second statement was in ref. to the employee.

maj · 07-27-2006, 07:47 AM

Quote:

Originally Posted by Grumpy

Workmans comp. The company specifically I spoke with was American Family Insurance. He said the policy is specifically written that anyone NOT a w2 employee is NOT covered by the policy.

That's who I have ALL my insurance with (business & personal). One of the reasons why is exactly what you are running into. They are the most honest insurance company out there as far as I'm concerned.

maj · 07-27-2006, 07:50 AM

Quote:

Originally Posted by Grumpy

All my full time every day guys ARE w2 employees. I only 1099 those guys who work a day here and a day there as needed. I do want to pay the premiums on these guys, however even though I can and will have to pay the premiums on these guys they still will not be covered by the policy if something were to happen.

So I pay but get nothing in return. So the point here is this... I can understand a company wanting to limit their liability and have a policy that a 1099 not be covered by the policy. I can live with that. HOWEVER if this is the case, then I should not have to pay their premiums.

Independents have to have their own policy. You cannot lump them into your policy. Since we're talking about WC here, well then, I guess they are just SOL.

cssconstruct · 07-27-2006, 07:49 PM

I think that what grumpy is saying is, if the insurance company in no way shape or form is going to cover the guy, then how can they say you owe them a premium for using an uninsured sub. They claim that you have opened them up to increased liability, when in fact they state that they are not actually covering the person with the premium they have received.

maj · 07-27-2006, 08:19 PM

Work comp premiums are based on a per $100 of paid wages. You list who your employees are. You guess what they're paid wages are going to be for the policy period. At the end of the policy period, the insurance company does an audit of what you actually paid out in wages. The difference is either paid or refunded.

With that said, work comp providers will only pay for claims on employees of the policy holder. Employees are considered just that if they get W2's from the policy holder. 1099's are NOT to be used for employees covered under a work comp policy holder. If you're sending out 1099's, then that person is considered an independent by the insurance companies.

Quote:

Today one guy said to me that "they are subs", I said "technically yes but I will be picking up their insurance." He said "If anything happens to them, they will not be covered." I said "But I will pay for them." He said "it doesn't matter."
So the insurance company will take my money to insure these two guys to work on an as needed basis, a day here a day there, but if anything happens to them they will not actually live up to their responsibility and actually insure these guys.

Sounds to me like Grumpy is offering to pay the insurance company for subs that the company is not going to cover. At least this guy is honest enough to forewarn Grumpy of the laws of work comp.

As stated before, you can list whomever you want on your policy. And you can list whatever paid wages you want. It all comes out in the audit.