1099 or W-2? Decide for real.

Why everybody wants to 1099

Pay a guy as a sub and this month you skip payroll taxes, work comp premium, and the bookkeeping. That's the whole appeal, and it's real — for exactly as long as nothing happens. The problem is that construction is one of the most-audited industries for misclassification, and every agency that looks at it uses the same starting question: who actually controls the work?

The label isn't yours to pick

The IRS decides employee-vs-contractor by looking at control, in three buckets: behavioral (do you direct how, when, and where the work gets done?), financial (who provides the tools, who carries the expenses, can he make a profit or take a loss?), and the relationship itself (is it ongoing, is his work a core part of your business?). There's no magic number of factors and no single thing that settles it. A real sub runs his own show: his own business, his own tools, his own insurance, his own way of getting your job done. If you set his hours and hand him a nail gun, calling him a sub doesn't make him one. Either side can even ask the IRS to rule on it directly — there's a form for it (SS-8).

It's not one test — it's several

Here's the trap that catches contractors: the IRS test, the federal wage-and-hour test, your state's work comp test, and your state's unemployment test are four different tests. A guy can be a legitimate 1099 for taxes and still count as your employee for Idaho unemployment, which uses a stricter two-part standard — he has to be genuinely free from your direction and running an independently established business. And the federal wage rule is in flux right now: the 2024 version isn't being enforced and a replacement was proposed in early 2026 but isn't final. Don't build your labor model on a label that four agencies get to second-guess. Both states also run coordinated enforcement — the agencies share data, so getting flagged by one usually means hearing from another.

Idaho: no waiver, no shortcut

In Idaho, work comp is required from the first employee — full-time, part-time, seasonal, or occasional, before their first day. Whether someone is an employee is decided case-by-case by the Industrial Commission using a right-to-control test, and the Commission says it plainly: it's not enough that you and the worker agree. Idaho has no independent-contractor exemption certificate — there's no piece of paper a one-man sub can hand you that settles it. If an uninsured “sub” gets hurt and the Commission decides he was your employee, you're personally liable for all of his benefits — medical and wage loss — plus a 10% penalty, attorney fees, and daily fines on top. Going without required coverage is also a misdemeanor.

Who's exempt by default — owners, family, officers →

The one-man Catch-22: the “if any” policy

Here's the squeeze for an owner-only sub in Idaho: the law doesn't require work comp when you have no employees — but the GCs handing out the work still want a certificate, and Idaho has no waiver to give them. The market's answer is the “if any” policy: a real, active work comp policy carrying zero payroll. It doesn't cover you, the owner — it exists to cover anybody you hire, from the moment you hire them (with premium owed on that payroll at audit) — and it produces a real certificate you can hand the GC. The catch: almost nobody wants to write a zero-payroll policy, so these usually land in the assigned risk pool — the market of last resort — which has carried a surcharge of around 50% over regular rates in recent years. If the regular rate would be $10 per hundred of payroll, the pool's is $15.

So the if-any policy is the right tool in exactly one situation: you'll truly run zero payroll and sub out everything, with a cert from every sub. The moment you have real payroll to report — even a little — you can usually do a lot better at regular rates. Which is why the mixed model is nothing to be afraid of: a few W-2 employees on a regular policy, legitimate subs with certs working alongside them. Text me where you're at and I'll tell you which side of that line you're on.

Utah: the $50 waiver — and the day it dies

Utah actually gives you a piece of paper Idaho doesn't: an owner-only business with no employees can get a workers' comp coverage waiver from the Labor Commission for about $50 a year, and when the sub is a sole proprietor, partnership, or corporation, the statute lets you rely on it (construction-licensed LLCs are the exception — more on that below). But read the fine print, because it's brutal and automatic: the day that sub hires anyone, the waiver is void — not at renewal, that day, by law. And Utah's statutory-employer rule runs the other direction: if you hire a sub with no work comp of his own and no waiver, his whole crew can legally become your employees. Construction-licensed LLCs get an extra wrinkle — Utah presumes the owners themselves need coverage unless the presumption is rebutted. So in Utah the rule of thumb is simple: every sub hands you a certificate or a current waiver before the first check. No exceptions, including your buddy.

The audit mechanic: certs are premium, not paperwork

Even when nobody gets hurt, there's a bill for sloppy 1099 habits, and it arrives with your premium audit. At audit, your work comp company asks for a certificate of insurance for every sub you paid. No certificate on file, and that sub's payments get charged as your payroll — at your class rates, with your experience rating applied, as if the crew were yours. The same pickup commonly happens on the liability side. A certificate that took one text to collect can be worth thousands at audit. That's why I tell every contractor: collecting certs isn't paperwork, it's premium.

What getting it wrong costs, all in one place

• Back employment taxes — withholding, Social Security and Medicare, federal unemployment — plus interest and penalties. (There's a narrow federal escape hatch if you filed 1099s consistently and had a reasonable basis — ask your accountant about Section 530.)
• State unemployment taxes and penalties, under tests that are stricter than the IRS's.
• An injury with no work comp behind it — the big one. You lose the protection work comp would have given you, you owe the benefits personally, and the lawsuit is open-ended.
• Audit pickup — uninsured sub payments charged as your payroll, at your rates.
• Uninsured-employer penalties — in Utah, the greater of $1,000 or three times the premium you should have paid; in Idaho, daily fines on top of everything above.

When 1099 is actually right

None of this means subs are bad — construction runs on them. A legitimate sub is a real business: he has his own entity or license, his own insurance, his own tools, other customers, and he controls how the work gets done — you're buying a result, not directing a crew. Work with all the legitimate subs you want. Just do the two things that keep it clean: be honest about who's really a sub, and collect the certificate before the first check — every sub, every job, every time.

The honest five-question gut check

• Do I set his hours and tell him how to do the work?
• Do I provide the tools and materials?
• Is he working only for me, week after week?
• Is what he does the core of what my company sells?
• If he got hurt tomorrow, would I expect his insurance to answer — and does he actually have any?

Mostly yes on the first four? That's an employee. Put him on payroll, get the class code right, and sleep fine. The 1099 route done wrong is the most expensive decision on this page.