Hiring Subcontractors and How that Impacts Your Workers’ Compensation Coverage
When hiring subcontractors to work with your company, you may assume that they have the proper insurance they need to protect their employees. However, this isn’t always the case and companies like yours need to take extra care when hiring subcontractors since it can be risky if they aren’t protecting their employees.
When hiring subcontractors to work on behalf of your business, you need to ask for proof of workers’ compensation coverage and confirm its validity.
It Can Cost to be Complacent
If you consistently work with the same contractors to handle the various needs of your company, such as electricians, plumbers, or painters, it can seem tedious to keep asking for certificates of insurance. Not doing so can be costly for your business.
Contractors need to have their own workers’ compensation policy to protect their employees since workers’ comp insurance does not cover independent contractors doing work for you. A contractor’s workers’ compensation policy will cover any injuries to subcontractors, even past injuries, based on their work hours. However, if a contractor does not have a policy and there is an injury, your business that may have to cover the cost of the injury, which can be expensive. You may also be held liable for any injuries involving independent contractor’s employees.
Policy Certificates Are Important for Audits
Companies sometimes move employees from W-2 to 1099 status to reduce paperwork and costs, including insurance premiums. But if you do not take out insurance for employees, it can be a problem.
Premiums exceeding $10,000 each year often require physical audits to verify employee status and payrolls. Other audits may include paper audits. If your company is faced with an audit, you will be asked by the auditor to provide the payment information for independent contractors, the 1099 forms, and each contractor’s certificate of insurance.
If you started working with a contractor without proof of workers’ comp insurance, or you cannot present it for whatever reason, the auditor will likely charge you additional premium for the contractor’s coverage. The cost of the additional premium depends on the type of work and whether it applies to all or a portion of the work.
An uninsured contractor that injures themselves can cost you a significant amount for their medical bills and lost wages, having a big impact on your loss history and future workers’ compensation rates.
Your Own Coverage is at Risk with Uninsured Contractors
There may be consequences issued out by your insurance company if you hire uninsured contractors. They may issue a retroactive premium charge for contractor coverage for the time they worked for you without insurance and they may non-renew you as a client. From the insurance company’s perspective, they signed on to protect your business and not the contractor’s business. They expect you to do your part to make sure the contractors that work for you are covered.
If you are non-renewed by your insurance company, you’ll need to disclose this on your future applications and you may struggle to find a new insurance carrier that will agree to insure your business and/or may charge higher premiums.
Confirming Certificate Validity is Important
Trust but verify. It’s not enough to go by the words of a contractor you’re looking to hire. It is important to check the workers’ compensation insurance certificate and to put a clause in your contractor agreement that states the contractor must have insurance and provide notice if they cancel their policy.
To ensure coverage valid, ask the contractor to provide a copy of their ‘Certificate of General Liability Insurance’ and their ‘Certificate of Workers’ Compensation Insurance.’ Doing this initial confirmation helps ensure you and your business are protected during an audit or during a workplace injury.
If you have any additional questions about protecting your business, we’re here to help. Contact us today about scheduling a PacPremier 360° Review to discuss this and any other insurance concerns you may be facing.