California Workers Compensation Audit – Disallows Subcontractors Invoice For Materials

A California contractor who uses subcontractors that supply materials for jobs has reduction of materials disallowed at audit by the State Fund. Even though the primary contractor provided invoices from the subcontractor which clearly showed the cost of materials separated from labor.

It’s a trend! We are seeing many insurance carrier audit departments now making requests for actual material invoices to be provided at audit as a requirement to receive credit and reduce those costs from an uninsured subs costs to the primary contractor.

Most subcontractors, when working for a primary contractor or general contractor, will at the end of the job present a bill to the primary or general for the work completed. When the subcontractor provides materials for the job their bill will then typically show a breakdown between labor and material costs. When an insurance carrier audits the general contractor they will pick up the full labor cost for the subcontractor but deduct a portion of the material costs from the total bill when presented with an invoice that shows the separation. Kind of makes sense right? Why should the general be paying workers compensation premium for materials an uninsured sub provided to complete the job.

A word of caution. It now seems audit departments are disregarding invoices provided by subs which show the separation between labor and materials and are requesting copies of the actual material invoices from the suppliers! Think about it! You hire a sub, he buys the materials and does the work and gives you a bill. In order to allow you to deduct the materials your insurance company wants to see actual invoices where your sub paid for the materials. They’re not your invoices, they are your subcontractors! What if he already had materials in his possession to do your job? I know, just more questions, sorry about that!

So, be careful if you hire or otherwise work with subcontractors! And remember, it’s always better to work with insured subcontractors. Be sure to secure and maintain valid insurance certificates from all subcontractors. And learn to avoid problems at audit by having all your ducks in a row!

Hope this helps you out in some way. Thanks!