Workers Compensation and Subcontractors: Protect Your Premium When Hiring a Helping Hand

August 3, 2020 • Missouri Employers Mutual

Today’s employer is resourceful. They use safety policies to create safer workplaces. New hires are carefully guided to prevent injuries. Directed medical care means injured workers get the right treatment. And many employers know when they need a helping hand. Subcontractors are another way to get the job done. Subcontractors aren’t always considered employees. But what happens if they are injured on the job? Does the client’s workers compensation policy cover them? Who pays the medical costs? Employers are often met with unexpected claims – and surprise costs.

On this episode of the WorkSAFE Podcast, we sit down with Chonna Patterson. She is the Premium Consultation Manager at Missouri Employers Mutual. Patterson joined the company in 1995. She works closely with policyholders and agents during the audit process. Class codes and payroll are sometimes challenging to understand. She makes sure that business owners are paying the correct premium – and saving money wherever they can.

First, we’ll talk about what a subcontractor is. Then, we’ll talk about when they are – and aren’t – covered by an employer’s work comp policy. Finally, we’ll talk about how to find a subcontractor that’s right for your business.

Listen to this episode on the WorkSAFE Podcast, or read the show notes below.

What is a subcontractor?

A subcontractor is any person or business who performs a job or service for another business. A written or verbal contract secures their services.

Hiring a subcontractor is common in many industries. They bring an extra set of hands – or a new set of skills – to a workplace. Instead of an hourly wage, they receive payment by the job. At the end of the year, they receive a 1099 tax form, rather than a W-2.

Does my work comp policy cover subcontractors?

Every employer goes through a process to hire employees. First, they hold an interview. After that, they choose the best candidate. But if a subcontractor isn’t always considered an employee, how do employers know if and when they are covered? Patterson shared an easy rule to remember. If the subcontractor is performing an essential task, then the employer’s work comp policy covers them.

If a subcontractor is performing an essential task, then the employer’s work comp policy covers them. Tweet this. >

ABC Plumbing: an example of subcontractor coverage

When would an employer be responsible for covering their subcontractor? For example, Patterson used ABC Plumbing, an imaginary subcontractor.

A general contractor hires ABC Plumbing. This contractor is building a house. The project needs plumbing installed. The house won’t be complete without it. ABC Plumbing is doing an important part of the work. After that, the house will be finished. As a result, they are covered by the general contractor’s work comp policy.

In a different example, ABC Plumbing is hired by a retail store. They have a broken toilet. It needs to be fixed. However, although the toilet is broken, they can stay open and continue to sell their products. The work that ABC Plumbing does is not a key part of the store’s operations. In other words, they don’t have to close for ABC Plumbing to work. Therefore, ABC Plumbing is not covered under the store’s work comp policy.

Impacts of a subcontractor injury: premium costs and e-mod

If any injuries happen, then the subcontractor will be covered by your work comp policy. In Missouri, employers are liable for anyone working on their premises. This includes employees, contractors, subcontractors, and any of their employees. As a result, a subcontractor claim will increase your premium costs. It will also affect your experience modification factor (e-mod).

Subcontractor wages: how they affect your payroll and premium

If a subcontractor doesn’t have their own work comp coverage, their wages are included in an employer’s payroll. Any increase or decrease in payroll will affect your premium. Patterson pointed out that if you work in a high-risk industry, or your subcontractor is performing risky work, your premiums could increase significantly. However, there is a way to avoid paying more premium for contract work: a Certificate of Insurance.

What is a Certificate of Insurance?

A Certificate of Insurance (COI) is a form showing proof that a company or person has their own work comp coverage. It lists details like:

  • Name of the insurer
  • Name of the policyholder
  • Policy time period
  • Type of insurance
  • Policy number
  • Effective dates

Why should I ask for a Certificate of Insurance?

This certificate protects employers from additional costs. In addition, subcontractors are protected. When you want to work with a subcontractor, ask for a COI first. Patterson recommends not letting any contractor or subcontractor enter a worksite without one.

How do I know if the certificate is real?

Patterson said it is critical to make sure the COI is real and effective. For instance, some contractors use old certificates. Others white out the dates and write in new ones. One way to spot an invalid certificate is if a contractor presents a copied certificate. Ask for an original copy. Make sure there is a policy number. Does the COI have the contractor’s name on it? Do the dates shown cover the dates of your project?

The certificate holder is the employer. If the certificate holder space is blank, beware! This may mean the subcontractor made copies to fill in and hand out. An easy way to check is to call the insurance company or agent on the certificate. Ask if the COI is valid. Agencies expect these calls. They are glad to verify coverage for employers.

The Missouri Department of Insurance has a helpful website. Simply search the name of the business or person you want to hire. The site can show you if there is a policy in place. To clarify, this is not a substitute for a COI. However, it is another way to confirm coverage.

Can I hire someone without a Certificate of Insurance?

Patterson recommends always hiring someone with their own coverage. However, there are exceptions. For instance, some states don’t legally require coverage. But if they do not have their own coverage, they will be covered under the employer’s insurance. Payroll – and premiums – will increase.

Some states allow a waiver of coverage. In Missouri, employers must show proof of work comp coverage. Occupational or business licenses require it. But some subcontractors don’t.

While this form isn’t required to get their license, it doesn’t mean they don’t need coverage. Even if someone presents a waiver, they are uninsured. An employer can still require work comp coverage of them. Without it, the employer will be liable for them.

Finding the right subcontractor

It can be hard to find the right subcontractor. Be open about requiring work comp insurance. It will help you find the right candidates.

Patterson said it’s never too late to start down the right path. Review your current subcontractors. Who has a COI on file? Are you working with someone who doesn’t? Create a plan to collect Certificate of Insurance right from the beginning. Above all, don’t allow a subcontractor to start work without one. Having a coverage certificate in hand means at least one preventable exposure for increased premium has been minimized.

August 3, 2020
Missouri Employers Mutual
Share this article