Workers Comp for Subcontractors: What You Need to know

If you frequently use subcontractors in your business to get jobs done, you know the headache and extra expense that can come with mismanaging the workers' comp around those subcontractors.

Today, we're going to talk about how you fix that.

If you use subcontractors in your business, you need to make sure they're properly covered by workers' compensation insurance.

Watch the video below to learn more...

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Workers Comp for Subcontractors: What You Need to know

Now, when it comes to subcontractors, we're talking about the contracting business, general contractors, all the way down to an electrician who needs to bring in a plumber to finish a job for whatever reason.

What you see a lot with carpentry, builders, and particularly general contractors, is subcontractors underneath them can be a major problem if the workers' compensation is not handled appropriately.

Now, here's the first thing I'll say, when it comes to subcontractors, particularly in the contracting class, you should be leaning heavily on your insurance agent.

If your agent is nonresponsive or they're not helping you build processes and programs into your business to manage your workers' compensation program, give us a call today, at (518) 960-6600.

This is what we do. We can help you manage this process. We can help put a plan in place so that you're not getting surprise audit bills because you weren't capturing the right documentation.

Now, that plug aside, obviously we believe that our process works and is the best, so give us a call.

mandate they have their own workers' compensation

That being said, here's what you need to know. If you bring a subcontractor on the job, always, always, always, always mandate they have their own workers' compensation.

Always mandate they have their own workers' compensation policy.

Have them provide a certificate of insurance to you showing that that policy is in place and in force during the time period in which they're going to be working for you.

You see a lot of certificates get screwed around with because maybe they had a policy at one time and they're fudging with the effective dates.

People will do all kinds of crazy things to get out of workers' comp.

At the end of the day, if that policy is not enforced, just because you have a doctorate certificate that says that it was, you're still going to be responsible for the premiums associated with their job function.

Particularly in builders, general contractors remodelers, you are doing high-premium work.

You know that, that's obvious. You probably wouldn't be reading this if you weren't already frustrated with this.

What you need to do is mandate it, and make it part of your contract. Have contracts with your subs. These can be one-pagers.

These don't have to be big, long contracts.

Have a contract with your subs and in that contract mandate that they hold a workers' compensation policy and their policy period falls during the time period in which they're going to be working for you.

What this does is it removes the payments that you make to them for their work from your total compensation paid in your policy, right?

You're carving out their work because they have their own policy, they're covered under that policy.

Maybe you bring someone on and they don't have a workers' compensation policy. Maybe you love John, he's a good guy, he's a great carpenter, but he doesn't have workers' comp.

We're going to bring him in. You now have to pay workers' comp for John, which is fine.

That's a perfectly fine thing to do as long as you're doing it from the standpoint of you're making a business decision that John's a great carpenter and you want him on the job.

You're also making a business decision that you're okay with him not having his own workers' compensation because you're willing to pick that up.

But if you don't pick it up, then you're going to get charged.

READ NEXT: Contractor’s Errors & Omissions Insurance: Everything You Need To Know

make your own decisions and run your business How you're going to do it

Here's the other thing that you need to know, and this again, I'm talking about what would be a best-case scenario for you.

You have to make your own decisions and run your business how you're going to do it, but breaking out payments to individuals and the job functions.

"We had these three guys on, they were plumbers. We had these four individuals on, they were our electricians. These 10 guys were our carpenters making cuts, swinging hammers, and doing that work."

By carving out what you're paying individuals based on the work that they're doing, you are able to better position your payments for workers' comp by class code.

If a carpenter is more expensive than a plumber in terms of workers' compensation premiums, you want to know that you're not paying premiums on the higher class code.

This happens all the time because specifically GCs and remodelers won't break out the payments to the individuals by the type of work that they were doing.

So if all these individuals have their own workers' compensation, no problem at all.

You can carve all those payments out of your total remuneration. If you don't, then it is highly recommended that you carve out who you're paying what by the class code.

Otherwise, what the carrier and the state auditor, if they come in, what they're going to do is lump all of these individuals into the most expensive class.

As much as it is likely to get injured, they're going to lump all of the payments, all the remuneration into the class that has the highest code, the most expensive code, and you don't want that.

That is how you get surprise workers' comp bills, and all of a sudden, you're peeling off a huge amount of money in a short amount of time.

That can create cashflow issues. Nobody wants to do that in general. I mean, I'm a business owner, too. I don't want to have to do that.

READ NEXT: Drastically Reduce Workers Comp Premiums: 3 Small Actions

The Rub

It’s essential for all employers to understand the risks associated with subcontracting.

Both parties need to be aware of the rules, regulations, and safety requirements that are necessary when it comes to workers' compensation.

It is also important to make sure that the subcontractors possess proper coverage in the case of any on-the-job accidents or illnesses so your business doesn't have to bear those costs.

Ultimately, understanding workers comp for subcontractors involves being proactive and taking preventive measures to ensure a safe work environment.

This is where we come in at Rogue Risk.

If your current insurance professional has never addressed issues like this with you before, I’d encourage you to reach out to us today.

I look forward to introducing you to a new way of viewing your insurance program.

Thank you,

Ryan Hanley


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