3 Workers’ Comp Mistakes That Cost Contractors Thousands

In contracting and construction, margins are tight and regulatory oversight is high — which means one Workers’ Compensation mistake can create unexpected costs, fines, or back-premium audits. Even experienced contractors can accidentally trigger penalties or assume coverage applies when it doesn’t.

Here are the three most expensive Workers’ Comp mistakes contractors make — and how to avoid them to keep your projects compliant and profitable:

1. Misclassifying Employees — Not All Job Roles Carry the Same Rating

Many contractors assume that all employees can be grouped under one Workers’ Comp class code — but rating a clerical worker the same as a laborer or roofer can result in significant overcharges or compliance issues.

Why This Matters:

• Field workers (like roofers, framers, or concrete crews) are assigned high-risk class codes — with much higher insurance rates.
• Office staff, estimators, or project managers working in non-hazardous roles qualify for lower-risk categories — but only if they are properly classified and documented.
• Auditors will reassign class codes if job roles aren't clearly identified, leading to back charges, penalties, or even coverage disputes after an injury.

Best practice: Maintain clear job descriptions and payroll separation for each labor category to ensure accurate classification.

2. Uninsured Subcontractors — You May Be Financially Responsible for Their Injuries

Hiring subcontractors may seem like a way to avoid payroll liability — but if they don’t carry valid Workers’ Comp coverage, your company becomes financially responsible for their claims.

Real-World Risk:

• If a subcontractor is injured on your site and cannot provide a valid certificate of insurance, your company may be hit with the claim.
• During an audit, uninsured subcontractor payments can be treated as payroll, dramatically increasing your Workers’ Comp premium.
• Some states consider independent contractors as employees by default unless strict documentation proves otherwise.

Best practice: Always collect and verify valid Workers’ Comp certificates before allowing subcontractors on-site — and keep them on file for audits.

3. Lapsed or Incomplete Coverage — One Uncovered Worker Can Trigger Major Fines

Even if you have a Workers’ Comp policy, coverage gaps — such as temporary hires, day labor, or unreported payroll changes — can expose you to serious penalties.

Painful Scenarios Contractors Face:

• Unreported part-time or seasonal workers leading to payroll audits and unexpected premium increases.
• Coverage lapses due to late payment, followed by state fines or stop-work orders.
• A single injured worker not listed on the policy resulting in an uncovered claim and potential personal liability for the business owner.

Best practice: Keep your policy active, updated, and in sync with payroll fluctuations — and make sure every worker on your job site is properly covered, even short-term hires.

Stay Compliant — and Protect Your Crew

Workers’ Compensation isn’t just a state requirement — it’s your financial shield against injury claims, legal penalties, and costly payroll audits. The right policy, properly maintained, ensures both compliance and protection — for your workers and your bottom line.

Want to make sure your Workers’ Comp policy is accurate and audit-proof?

Call Defy Insurance Agency at 877-780-4626 to get a coverage review or request a contractor-specific quote today.

Defy Insurance Agency helps contractors avoid costly Workers’ Comp mistakes and secure compliant, properly classified coverage — so you can focus on building, not battling insurance penalties.