Posted by Nancy Germond, MA, ARM, AIC, ITP, SPHR, SHRM-SCP, OldRepublicSurety
Once an owner or developer selects your company for a construction project, one of your many tasks is to ensure that your workers’ compensation program meets all contractual requirements.
On larger projects, construction contracts normally detail which contractor is responsible for ensuring all workers have workers’ comp coverage. Not all contracts are as clear as they should be, however. Many smaller construction projects occur with a simple handshake. Relying on your subcontractors to furnish their own workers’ compensation coverage can lead to problems for your construction company, including difficulty in obtaining the surety bonds you need.
When general contractors and subcontractors work together
In the construction industry, states highly regulate the relationship between the contractor and the subcontractor, says Chris Boggs, the executive director of the Independent Agents and Brokers of America. As quoted in My New Markets, Boggs states that almost all states and the District of Columbia require workers’ compensation benefits when general contractors and subcontractors work together. Subcontractors must provide workers’ compensation benefits to their employees in these states. General contractors, by statute, must supply benefits to the subcontractor’s injured employees if the subcontractor is uninsured. Additionally, the general contractor’s insurer will charge a premium for uninsured subcontractor’s employees, even if no injury occurs to those sub’s employees. Your workers’ compensation insurer will bill you for this additional premium at your annual audit.
That’s why it’s critically important that any contractor hiring subcontractors ensures that all subcontractors it hires carry workers’ compensation coverage for their employees.
What about the small contractor with no employees who does not carry workers’ compensation insurance? Your insurer may allow you to provide a signed affirmation from your subcontractor that declares that the sub understands they are not an employee of you, the contractor.
A lot can go wrong here. What if that subcontractor picks up a casual laborer for the day, as often happens in many trades? Now assume that laborer falls off a roof or hurts his back digging. Who pays then? That jurisdiction’s administrative law judge could find you, as the contractor, statutorily responsible for the injury. If that happens, your workers’ compensation policy may have to pay that injury.
Remember, your commercial general liability policy does not cover injuries to employees. If you’re hiring subcontractors, it’s vital to obtain a valid certificate of insurance from all subcontractors. Work with your independent agent if you have any questions about any certificate’s validity.