Workers' comp premium audits and subcontractors in California: how to prepare
- Your workers' comp insurer audits your payroll after the policy ends. Under WCIRB rules, policies with a final premium of $10,500 or more get a physical audit at least once a year.
- Payments to subs who are uninsured or unlicensed can be added to your audit as payroll. A 1099 alone doesn't prove someone is an independent contractor.
- State Fund, for example, says to get a workers' comp certificate from every sub with employees, and may treat a sub with no certificate and no valid license as your employee.
- Prepare all year: license check and comp certificate for each sub, covering the dates they worked.
How the audit works
After the policy period, your workers' comp insurer audits your payroll records to set the final premium. Under the WCIRB's reporting rules, each policy with a final premium of $10,500 or more gets a physical audit at least once a year, and the last audit has to cover the complete policy period (WCIRB USRP, Part 3, Section VI, Rule 4). A physical audit can be done remotely, but the auditor reviews your books and original payroll records (WCIRB).
Roofing is stricter: every policy for a C-39 license holder gets a physical audit of the whole policy period, and the insurer has to audit payroll every year with an in-person visit (Ins. Code §11665).
Where subs come in
- Uninsured or unlicensed subs can become your payroll. State Fund says payments you report on a 1099 to uninsured or unlicensed workers may be subject to premium and included in the audit as payroll, decided case by case (State Fund).
- No license, no independent contractor. Unlicensed people doing work that needs a contractor's license are employees for workers' comp purposes (State Fund; Labor Code §2750.5).
- Certificates matter at audit time. State Fund tells policyholders to get a workers' comp certificate from every sub that has employees of its own. If you can't show one at audit and the sub doesn't have a valid license, it may treat the sub as your employee and charge premium (State Fund).
- A 1099 isn't proof. The WCIRB notes that a 1099 doesn't by itself make someone an independent contractor, and that many auditors place independent contractors on the policy at audit (WCIRB Ask the Ombudsman).
Each insurer applies its own audit procedures, so ask your insurer's auditor up front which subcontractor records they want.
Prepare before the auditor calls
- A list of every sub you paidName, CSLB license number, trade, dates worked and total paid. It should match your 1099s.
- License check for eachA saved CSLB lookup showing an Active license, with the date you checked. Sub Check or CSLB's Instant License Check.
- Comp certificate covering the dates workedNot just today's certificate. If the sub's policy renewed mid-job, keep both.
- Exempt subsKeep the CSLB record showing the exemption. Remember C-8, C-20, C-22, C-39 and C-61/D-49 can't use it. See workers' comp and subs.
- Your own owner exclusionsThe WCIRB notes eligible owners must elect exclusion every year, no later than 15 days after the policy starts, and it can't be done retroactively (WCIRB).
If you disagree with the audit
Start with your insurer. The WCIRB also runs a Policyholder Ombudsman for questions about workers' comp rules (WCIRB Ask the Ombudsman).
General information for California contractors, current as of November 3, 2026. It isn't legal advice; rules change, so check the official source linked above.
More guides
- How to check a California contractor license (CSLB): a GC's checklist
- Workers' comp and subcontractors in California: what GCs should check
- Certificate of insurance checklist for California general contractors
- Additional insured and waiver of subrogation for subcontractors: a California GC's guide
- Risks of hiring an unlicensed subcontractor in California (for GCs)
- California contractor's license bond ($25,000): what it covers for a GC
- Matching a sub's California license classification to the work