General Contractors, Subcontractors and Workers Compensation Audits
Tom Calley, CIC
A number of insurance carriers are now charging a premium to the general contractor on audits for any subcontractor who is hired and does not have Workers Compensation coverage in place during the audited policy term. Historically, they did not charge for the Workers Compensation exposure if the subcontractor indicated that it did not have employees and they produced a certificate of insurance verifying that General Liability coverage was in place during the audit period. Over the last several years, the courts have increasingly ruled that coverage would be afforded from the general contractor’s Workers Compensation policy if a subcontractor or their employees were injured while working for the general contractor. Because of this, many companies are now charging a premium for the exposures to all uninsured subcontractors. As a general contractor, you need to be sure you collect Certificates of Insurance for General Liability and Workers Compensation coverage for any subcontractor you hire or bring on the jobsite. Subcontractors need to remember that they also become a general contractor as soon as they hire anyone to the jobsite.
As the general contractor, you will be responsible for Workers Compensation insurance for the subcontractors or independent contractors you hire, unless you have a valid certificate showing that they carry their own workers compensation insurance. It is critical to ask for their certificate proving coverage prior to allowing them to begin the job. If you do not have proof, you will be providing the subcontractor and his/her employees coverage through your own policy. Look over the certificates very closely and obtain a new certificate if the current one expires before the end of the contract. The only way to not pay workers compensation premiums for a worker is to have proof they are covered under another policy at the time they are performing a service for you.
Document the fact that you’ve hired subcontractors or independent contractors that have workers compensation insurance. Auditors specifically look for uninsured subcontract labor when conducting the workers compensation audit at the end of the policy term. You will find the questions they ask will uncover the uninsured subcontractors. If you do decide to hire an uninsured subcontractor, remember to factor in the cost of covering their Workers Compensation insurance into your company’s contract with the subcontractor. The cost may be very hard to quantify, but the avoidance of paying the actual injury claim and/or fines for an uninsured subcontractor’s employee, will be well worth the time spent.