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Talking Pools Podcast is the pool industry’s “pull up a chair” show—part shop talk, part field manual, part therapy session—built for people who actually live on pool decks: commercial operators, service techs, builders, facility managers, and anyone responsible for water that can’t afford to go sideways. The network was created to level up the pool industry with real-world conversations on water chemistry, filtration, troubleshooting, construction, safety, and the business side of keeping pools open and budgets intact.
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Calling someone an independent contractor does not automatically make them one.
In this Insurance Interlude, Steve Sherwood and Pat Grignon of the California Pool Association examine the complicated line between 1099 subcontractors and W-2 employees. They discuss what may help establish a legitimate subcontractor relationship, including separate business entities, independent insurance coverage, control over scheduling, and performing work for other customers.
They also explain how seemingly harmless decisions, such as providing gas cards, reimbursing mileage, or controlling a technician’s schedule, may make that relationship look increasingly like employment. And when a misclassified worker gets injured, the resulting investigation, lawsuit, penalties, and unpaid payroll obligations can threaten the entire company.
The lesson is simple: the time to understand your coverage and employment structure is before someone gets hurt, not after the lawsuit arrives.
In This Episode
What separates a legitimate subcontractor from an employee
Why issuing a 1099 does not settle worker classification
The importance of separate business entities and insurance policies
How scheduling and operational control affect classification
When gas cards and mileage reimbursements can create problems
Workers’ compensation requirements and protections
How one workplace injury can trigger a much larger investigation
When general liability insurance may provide defense
Why every pool company needs a strong relationship with its insurance agent
Worker-classification and insurance requirements vary by state and individual circumstances. Speak with qualified insurance, tax, and legal professionals before making employment decisions.
Looking for insurance coverage? The California Pool Association serves pool professionals and other businesses throughout the country. Mention the Talking Pools Podcast to receive one month off a general liability policy.
Hey everyone, and welcome back to another episode of the Insurance Interlude with your host, Steve Sherwood. And as always, our guest, Pat Grignon, California Pool Association. So, Pat, thanks for coming on. Hope you're uh having a good week. Yeah, appreciate you having me, Steve. Thank you. Cool. So there's all different types of ways that you can like run your business, right? Like uh you could be an S Corp, you could be a C Corp, you could be uh LLC, you know, and then when you have a partner, you can get all different types of like insurance where you could get like key man insurance and like uh all these like weird off-brand types type stuff that that's super helpful if you're you know running a business with partners and different things like that. So I just want to take a step back for a second because here in California, they're they're pretty strict about what they want you to be doing with you know 1099 and W-2. So I want you to talk, you know, for a few minutes just about if you are 1099ing your employees, you know, like is there certain I know like you know, obviously they have to be doing their own pools, they have to have their own insurance, right? Like there's a there's there's certain things, but like did do they have to have the same coverage that that you have, you know, when you're doing 400 pools, you know, compared to this kid's 20 or whatever it is during the week. Um, like what does that look like? And then, you know, I guess just for me, what's a little checkout of some stuff that we we need to be making sure that we're doing? Because uh, you know, we try really hard to make sure that we're we're doing the right stuff. And uh that includes you know, having them have their own pools and having them do exactly what they need to do to suffice to be able to do that, because once you change to a W-2, then everything pretty much changes. So let's talk about that for a second.
SPEAKER_03
Yeah, you bet. Yeah, it's it it's very common and uh you know the government looks at it, obviously. Insurance companies look at it, and if you know they there's not a clear separation, you know, that a lot of times they'll charge you for that payroll or for their revenues and whatnot in in an audit situation. But yeah, generally speaking, I mean, you hit a you hit a bunch of the of the main points. There's normally a lot of bullets to the in the gun for this, right? There's not a very clear, like if it's this black and white, then it's then it's 1099 and it's it's uh all above board and exactly how you need to do it. But yeah, I mean, they should be their own business entity. So it gets a little bit murky, like if you're a sole proprietor and they're a sole proprietor, or even if you're a corporation or an LLC or whatever the case might be, and then you you have them working for you as a sole proprietor. It's not like that's again, if it's not like that's gonna say, oh, they have to be W-2'd, but if they have their own business entity, um that's that's quite helpful if they're a core for an LLC, something along those lines. That that's a helpful bullet for the argument. You know, but yeah, you know, you can't have them on a schedule, right? So they do and they do their own pools as well. They have their own general liability policy or work comp or whatever the whatever the policy is, depending on if they've got employees on their side. But I think once you have all that in line, it's a pretty, it's a pretty solid argument. And and it is per state, you know, when it comes to the requirements. California, as I'm sure everyone can imagine, who doesn't live and work here is a hard place to live and work because of uh because of all the regulations and whatnot. So a little bit, a little bit easier across the rest of the country from what I've seen. But uh, but yeah, I think you check all those boxes and you've got a pretty good argument that they're their own independent business, that you're subcontracting, and then they fall into the 1099 bucket, you know, own entity, their own insurance, they do their own pool. You don't have them on a set schedule telling them where they need to be and when they need to be there.
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SPEAKER_02
What if my what if like my employee, you know, he needs new tires, you know, and I want to get him new tires. Am I allowed to do that? I don't know.
SPEAKER_03
Sure. Yeah, yeah, you can. I think if you're like paying for anything that you can't, is there anything that we can't that you can't do? You wouldn't want to like reimburse for mileage or like, you know, give them a gas card or anything like that. But yeah, nothing's stopping you from from buying another business, you know, something something nice. You know, but if it's a regular recurring thing, that's where you're gonna have some explaining to do where it's like a separate business, but you're paying for as gas, you're paying for another business's gas. Like, eh, you know, this seems like it should be more of a W-2 than a 1099. So I think about it as like ongoing recurring stuff is you know, not something that you'd want to broadcast or or or be, you know, have a bunch of submitted records on at minimum.
SPEAKER_02
Right. No, I guess I'm just saying that because like uh with gas, that's that's definitely, you know, kind of like, okay, that's my employee.
SPEAKER_03
Yeah, yeah. Or a mileage reimbursement. That's you know, that's not uncommon for W-2s that are using their vehicles for uh for work purposes or personal vehicles.
SPEAKER_02
So I assume as soon as you go to W-2 now, now you have to pay these guys for money.
SPEAKER_03
You don't necessarily have to, but uh, but you know, competitive landscape out there, I guess. I'm sure that would make it more attractive if you were paying for the gas or get them on a gas cart or or paying for their uh mileage reimbursement or something like that, or not doing either. I mean, you don't you don't have an obligation to do either of those, but that's more of a decision from an employer standpoint versus uh versus anything with legalities.
SPEAKER_02
Got it. So now as soon as like at what point would you say, like, okay, you have enough employees, you should be a W-2. Like, is there any because and the reason that I asked this is because like we got like a couple partners, you know, like whatever employees, whatever you want to call them. But like there's bigger companies out there that also work in Los Angeles that have 25 guys that work for them. Yeah. And they're all 1099s. You know, so at what point like does that get we like murky, you know what I mean? Because it's kind of like uh, you know, it's one thing to have a couple employees, it's another thing to to be running like a you know a 50-person business.
SPEAKER_03
Yeah, yeah, yeah. There was a shop up in the valley that got cracked for that. It was they had, I think, 40, 1099 kind of service field techs. And the government, however, the IRS or whatever found out they're like, here's the deal, you can shut down your company or you can pay this, you know, $1.8 million fine, whatever, whatever it was. It was like stupid, uh fine, fine-wise. So we ended up actually, all those guys ended up, you know, basically being sole proprietors, and we got all of them insured, but yeah, that company had to shut its doors just because the fines, the money wasn't there and it wasn't wasn't worth keeping it open for the amount of fines that the that the the feds were throwing at them. So so I I agree with you, you know, technically there's not necessarily a number, at least in most states. I mean, look, Florida from a work comp standpoint, like so once you have three or more employees, W-2, in the state of Florida, then you're required to carry workers' compensation on them. But if you have less than three, then you don't. Texas doesn't have any requirements for workers' compensation. All the rest of the states have a requirement from employee number one, normally, whether part-time or otherwise, any W-2, you're mandatory to carry a worker's comp. Even for our folks in Texas, though, I always encourage them to get a work comp policy, even if it's not required, just because when you have work comp, work comp is like the sole remedy for a workplace injury. So, like, I could make you jump over a tiger pit every morning to go get in the truck and you get injured, work comp's gonna kick in, they're gonna pay. And, you know, obviously, if it's like grossly negligent like that, you may have some liability there. But the employee cannot sue their employer for negligence when work comp pays. It's the sole remedy. So even in states like Texas where it's not required by law, it's a good idea because otherwise, employees, when they have injuries, they can come back and sue you for, you know, negligence and having an unsafe work environment. Whereas if comp pays, that's it. Comp's the sole remedy, they can't come back.
SPEAKER_02
Now, what about like with 1099's? Let's talk about disgruntled employees with that. You know, somebody gets injured. There there is no workers' comp. Yep. Right. But what if they get injured on a job that, you know, Joe Schmulpool Company hired them for, or you know, what whatever they're subcontracting or whatever the case? Yeah. You know, from that angle, how does that look?
SPEAKER_03
That's how that big operation in the valley got cracked, actually. They had one of their 1099s ended up get getting hurt, and they're like, kick rocks, we're not paying for you your 1099, we don't, you know, don't have to work comp and aren't gonna pay the bills. And so that's kind of how that all started getting in front of uh the authorities at that point. Um Yeah, look, you know, like if I think about like um if if if I'm a a home builder and I, you know, I don't do concrete, all I do is the framing and finish work and you know, I subcontract everything else out, you know, the the company that's pouring the concrete for the foundation, for the slab, for the driveway, et cetera, you know, that's its own company. If they if those those if they get injured, like that's not it wouldn't be normal to come after me as the prime con the general contractor to go pay the bill for another business that I've subcontracted and is I'm paying, you know, money for. So it really only gets murky when like it's clearly like you're just trying not to pay, you know, the the load for a W-2 or Carry Work Comp. You know, if it's if it's just the workaround to for tax and for money purposes, and I get it, like the load, payroll taxes and and in is about 10% on top of what the wages are, then work comp is probably four more percent give or take on top of that, you know. So I you just you run the risk if it's just a workaround to avoid paying the taxes. But if they're truly a subcontractor, then the likelihood of of them coming to you and saying, I've been injured, or one of my team people got injured, you need to pay for it.
SPEAKER_02
Yeah, all right. So I guess, you know, I totally understand that. I guess more like what I'm thinking is like, you know, you're on a job and like that person now tries to sue everybody because they got hurt there. You know, they try and sue the homeowner, they try and sue, you know, me, maybe because there's a piece of concrete sticking up from a tree branch or or something, and they're they're walking out and they trip and fall on their face and they hurt themselves really bad, you know? Yep. And now they're suing the you know, the person that owns the home, they're suing the landscaping company, you know, they're suing us, they're suing everybody, right? So that's everyone who's on property, yeah. Right. So that's more, I guess, what where I was where I was going with it.
SPEAKER_03
So yeah, generally they would there would need to be some kind of work comp policy in place if that was gonna step in and and help them. If there was, say it was the homeowner that fell on their face and got injured, like your general liability policy would kick in and and normally cover that. So what I would say in that event, talk to your insurance agent, you probably want to talk to the insurance carrier and put in like, hey, there's this is a claim, I'm being drawn into this lawsuit, or there's a threat of a lawsuit, you know. And I I would start with your GL because it's really dependent on the specifics of the situation, you know. But that that'd be my starting point because, you know, if if it's legit, you probably have coverage or at least the cost of defense, you know, to get you out of it would be would be under your GL.
SPEAKER_02
Every starting point is talk to your insurance person.
SPEAKER_03
Yep. Yeah, yeah. We we work together. It's not not not me versus you or anything like that, or how have a good relationship with your insurance agent and be able to talk and say, hey, let's have an off-the-record conversation. What if something like this were to happen and they should be able to shoot you straight? I really, you know, I feel strongly about that.
SPEAKER_02
The biggest thing is that I mean, you know, no matter what type of business you run or how safe everybody is and all that stuff, accidents are still gonna happen. People are still gonna get hurt. So it's you know, it's good to talk about this type of stuff when it happens and what type of coverage you have, because uh the time to not ask is after the accident happened.
SPEAKER_03
Yep, yep, for sure.
SPEAKER_02
And that's um that's I'm sure a lot of the time, you know, the the case of what happens. So, Pat, thanks so much for shining some light on this uh subject that we were talking about today. And guys, thank you so much for listening. So if you are out there looking for insurance, California Pool Association does insurance all throughout the country for all sorts of companies, not even just pool companies. So reach out to them if you have any questions. And uh if you mention the Talking Pools podcast, they'll give you a month off your general liability policy. So, again, guys, thanks for listening. I hope you have a great week. I'm Pat. Uh, we'll we'll chat at you next week. Awesome. Thanks, Steve. Appreciate you having me.
