State Fund and $50k charge


I thought I had everything in place to legally, legitimately use subcontractors on some of my jobs. I had an agreement/they had licenses/liability insurance/ there own vehicles/poles/equipment, everything to be legit sub. State Fund at audit time said, “no, subs are hourly and you owe us $50k” I’m shortening this but wonder what thoughts are out there on appealing/fighting this ruling. Any thoughts are appreciated.

Hiring Subcontractors-need advice!

My good friend had state fund say the same thing to him regarding the same situation. He stuck to his guns, and ultimately it came to nothing because Statefund did not pursue it.


There are many more factors to determining the relationship than just hourly vs percentage vs flat rate. Singling out one point probably would not hold up in court for them. I’m no lawyer, but based on my research and experience.


Sounds like you were doing everything the proper way to hire subcontractors. This is defiantly an area you want a lawyer for.

From what I see, some guys are using subs as full time employees and are risking getting pinched for it. But if you are truly using subs the right way, there is nothing wrong with that.


Please elaborate and define " State Fund " for the sake of others who are not from your State. In Ohio we have several different State entities we deal with but don’t Identify it as State Fund. Please Clarify so I can respond appropriately.



You and I both probably had the same Nazi. Oriental guy?
If they are giving no mercy, get a lawyer Paul. State Fund ain’t no joke man and if I were you, I would not say another word to them until I got with a lawyer.

See if you can appeal it in house first tho. They may just be shaking the tree and seeing if something comes out. If not, don’t worry too much about it. You are in the clear man. There are plenty of others who they can easily come down on to make an example of other than someone who is doing things legally.


Hey Jeff, In Ca. window cleaners, for the most part, only have an entity called State Fund to get w comp through. I’m pay 27% ($27 for every $100 of payroll) and I have no choice. Not sure how this entity came to be but they are impossible. So, “rock and hard place” in that I have to have comp but only one place (monopoly) to get it. I will be talking to an attorney and an outfit that specializes in this kind of mess.


Hey Tory, I agree and will be talking to a lawyer today. I plan on pursuing this to the state insurance commissioner if I must.


Yikes! How do you make a profit? :open_mouth:


Build it in…60-80 dollars an hour for an hours window cleaning.


And this is why the debates on pricing are a waste - the crazy overhead that some guys have simply based on state or municipal regulations.

Hope you get this crap figured out.


Thx Tex


Good old state fund. Our overage bill was $16k in 2016. I ultimately got stuck and had to pay it. But my overage was because they categorized my wife as a window cleaner when she’s an owner who is supposed to be exempted.The big thing is that your subs have to have proof of workers comp and you have to get a certificate from them listing you as the certificate holder/additional insured. If you don’t have that, you are legally liable to provide their workers comp coverage. That’s why it’s almost not worth using subs in CA. The state will find anyway to not allow you to label people as subs. It’s pretty much to the point that you have to have a GC license to sub anything out. That or don’t tell state fund you use subs, then they wouldn’t be asking about them, but I don’t know the legalities behind that and I’m not an attorney.

Definitely get a lawyer and try to fight it, but it’s an uphill battle. It took me 4 months to get a $10k reduction down to the $16k. Another note, i did try to hire an attorney for my problem but nobody wanted to touch it, they said that the amount of money they are asking would be cheaper to pay than their fees and they can’t guarantee a win against them. Maybe I didn’t ask the right attorney’s.

We’ve had them for 5 years now and we are at 27% as well, no claims, losses, etc. but it goes up by about 1/2 to a full percent every year. We started at 23% and here we are now. It’s becoming challenging. Our mandatory effective rate for our employees is $75 per hour but most hit about $90 and some month’s its really hard to squeak out a profit.

Feel free to reach out to me and I’ll tell you what I went through last year and go through today.



Thanks for the clarification. It is the equivalent of Ohio Workers Comp. Insurance. My rate is 7.5 % for each dollar of payroll. My total payroll tax rate is 18.55 %. Ohio is also really cracking down on using 1099s. I stopped doing it some 20 years ago and transitioned to all employees. When I ran my situation through the litmus test ( Employee or Sub ) it was obviously apparent that they truly were employed. You can google the IRS publication for yourself. Once I made this switch and embraced it I had much more peace of mind:
1- Because what you are experiencing now and…
2 - From a liability standpoint from a
" sub " getting injured.

Two years ago, A State of Ohio Unemployment official did an Audit on me. Wanted to see every check written that year. I had to and did cooperate. If it was not to a business but an individual they wanted to know who they were. I had about $120.00 paid to a local guy who cleans and details my vans.They actually tried to make me pay back payroll taxes on him. They finally relented but this is the new environment we all need to be aware of and respond accordingly.

I truly hope somehow you get a favorable result. Please keep us posted


Helpful comments …thank you. I’m going to take a few more steps with State Fund and see if they will give a stamp of approval for my “subs” and if not will be forced to “employees only.”


Another very helpful reply. Thank you. I’m beginning to get the picture that the fight isn’t worth it. I may have to revisit the “percentage” thing. Guys who have there own companies won’t work for $24/hr


People that herd water off of glass, it seems like normally aren’t experts in law.

All that’s to say, I’m glad I was able to share my profoundly extraordinary advice.

No but for real I’m sorry you have to go through that, I’d imagine it’d be a gut wrenching situation! stupid taxes


I love the expression “It is what it is.” It’s a surrender (if I absolutely must pay this, and I’ll do all I can before I do!!) approach that cuts down the amount of suffering one endures. It will likely cost me 35% of my hard earned income in 2017 but if it does…ok, it’s done, lets move on to 2018. Nothing gained by having the situation and suffering over it. I’ll just have the situation alone.


Another way to look at it is:
If you are actually using subs properly, you should not be made to pay. If I am in the right, I’m gonna fight tooth and nail.

If you ARE using them improperly, you are gonna get pinched. If you have went to the extent to make sure these subs have liability, workers comp, and you have the proper documents lined up, you really shouldn’t be where you are. I know government at times gets stupid because they have all the time and money in the world. But laws are fairly clear about what is a sub and what is an employee.

I hope you at least talked to a lawyer before you went this direction with your business. I don’t say all this to kick a guy in the teeth. I say this that if you are in the right, if you did your due diligence, I hope you kick their ass in court.

I’d tend to believe you are the kind of guy to do things properly. If you were the type to do something crooked, I’m sure everyone here would tear you a new one, after airing your story.


You’re a stand up guy Paul. Everyone here in San Diego knows it too. If you
need a character witness, I’m your guy. Plus let me tell you Paul, over the
years and recently too, some of my clients know of you thru one of their
relatives or another way there isn’t one person who doesn’t say you ain’t a
stand up guy.

One of my clients, his wife works for you part time (the conversation took
place maybe 4 months ago). He’d go to bat for you. Last name is Ebert I
They need to look elsewhere man. You don’t deserve this, especially since
you’ve done everything by the book.

On a side note Paul, one of the guys said that a lawyer didn’t want to touch it, that may be true for some but you need to look in the right place for the lawyer. I can give you a number to one who if he won’t take it will tell you what you can do to win. You WILL win. You are in the right, and you can bet you are not the only one in this spot. If you do a quick search online for WC fraud you will see that there have been actual sting operations for unlicensed contractors in the construction industry, some of the stories were talking about the fraud in workmen comp claims being the reason the rates are thru the roof.

This may be in response to that.
So…the dragnet is pulling in anyone caught in its path, you need to find something sharp to get out of it.

Don’t just look here, Paul you got alot of friends. CALL THEM.

Tory (Salvatore) Marino
Owner/COO/Cookie Dough Ice Cream Lover