A Real Life Game of Chutes and Ladders!
Here's where I've seen contractors try to skirt the law; define their 'employees' as "Independent Contractors" thereby avoiding (so they think) workers comp as well as taxes.
The IRS has a very narrow definition of what an Independent Contractor is. Generally speaking, if a business owner has control over how, what, where and when labor is being performed, they are EMPLOYEES!
What this means to you: if someone gets hurt on your property and the contractor does NOT have a workers comp policy on them, YOU WILL BE LIABLE AND SUED.
Most Homeowner's policies DO NOT cover construction work on your property. Don't be misled. Look at the wording on your policy, usually it states "occasional servant" which covers people like babysitters and the neighbor's kid mowing your lawn.
Upon hiring a contractor, request a copy of their Workers Comp policy. Make sure it is valid, and not expired.
In California, the contractor's licensing laws require that the worker's comp be directly connected with their license. If the policy expires, their license becomes invalid immediately.
Here in Colorado, licensing laws are different and there is no connection. I have seen many 'want ads' from contractors looking to hire carpenters and treat them as 1099 Independent Contractors. It's rampant around here and it seems that there is no interest from authorities in trying to curb this illegal hiring practice.