Contractor Insurance And Risk Management Blog » Workers’ Compensation

Subcontractor/Independent Contractor vs. Employee

admin — Fri, 23 Apr 2010 14:25:45 +0000

Our builder clients always ask us about the difference between an employee and a subcontractor (AKA independent contractor) for purposes of Workers Compensation and tax withholding. There are a number of rules of thumb on this issue that have been circulating from IRS and Workers Compensation authorities. However, we just found a fantastic article on this topic that we wanted to share that provides more thorough advice on the topic. Read the article by clicking on the source link below.

Source: Independent Contractor or Employee, SC Lawyer Magazine January 2010

Can GC Be Stuck With A Workers Comp Claim for An Excluded Owner?

admin — Wed, 31 Mar 2010 13:25:08 +0000

One of our builder insurance clients recently posed the following question – Could a builder who is excluded under his own policy be stuck with a Workers Compensation claim for the owner of a subcontracting company who is not covered under his own Workers Compensation policy?

I spoke to a manager at the South Carolina Workers Compensation Commission who advised that it would be rare for an injured owner of a subcontracting company to be successful in tapping into coverage under a general contractor’s Workers Compensation policy. The injured owner would have to prove that he is an employee of the general contractor. This may be difficult short of a situation where the general contractor is just calling the subcontractor an independent contractor to evade paying payroll taxes.

My advice to our builder clients is this:

It is best if the owner of the subcontracting company is covered under his own Workers Compensation policy. It is very common for them to not be covered. It is an acceptable risk in my opinion for the builder to accept a certificate of insurance showing that the owner is not covered. It may be helpful for the builder to have a provision in his contract with the subcontractor to the effect that the subcontractor understands that he is not entitled to benefits under the builder’s Workers Compensation policy and that no premium has been deducted.

Source: John Sadler

Injuries At Employer Provided Housing Covered Under Workers Comp

admin — Tue, 30 Mar 2010 14:32:20 +0000

In the case at hand, a migrant worker was injured when he fell on a wet sidewalk at housing supplied by his employer.

The “bunkhouse rule” was argued and the rule acknowledges that there are circumstances when it is necessary for the employee to live in housing provided by their employer in order to complete their job. The migrant worker and others resided in housing provided by their employer.

The South Carolina Workers Compensation Commission denied the claim. However, the South Carolina Supreme Court ruled that the worker was entitled to Workers Compensation benefits due to the “bunkhouse rule” and the testimony of the company’s president, which stated that his business could not operate if he did not provide the housing.

Source: www.insurancejournal.com

Driving To Coffee Break Covered Under Workers’ Compensation

admin — Wed, 17 Feb 2010 14:10:59 +0000

In the case at hand, a NJ plumber was injured in an auto accident while driving to take a coffee break, with the permission of his employer. He was injured while driving a company vehicle. The plumber’s appointment was late, and as a result, he had some time to kill.

The New Jersey Division of Workers’ Compensation rule that the serious injuries were compensable since the accident arose in the course of employment as opposed to being a personal errand.

In my opinion, this case is a “stretch” and exemplifies that most Workers’ Compensation Commissions will go to great lengths to allow benefits.

Source: http://www.insurancejournal.com/news/east/2010/01/25/106840.htm

Decreasing Workers compensation Premiums: Increasing Loss Ratios

admin — Tue, 15 Dec 2009 15:32:33 +0000

One factor that insurance companies use to underwrite your contractors Workers Compensation insurance policy is loss ratio. Simply put, your loss ratio is the dollar amount of losses divided by premium. A contractor with a loss of $10,000 who paid $20,000 in premiums would have a loss ratio of 50%. Within the last few years, we have seen a drastic drop in contractor’s payrolls. Given that trend, the same contractor with a loss of $10,000 might only be paying a premium of $10,000. His loss ratio would now be 100% and the risk would be much less attractive to underwriters.

Current losses can cost you much more if you have less payroll than in past years. One recommendation is - don’t cut back on your safety program! Investing your time & money in a safety program will protect you and your business in the long run. Make sure your safety program is current & up to date.

Source: SCHB Self – Insurers Fund (Andrew Woodham, Marketing Manager)

Unsigned Certificate Of Workers’ Compensation Insurance Not Valid

admin — Wed, 18 Mar 2009 16:45:51 +0000

In the February 9, 2009 case of Barton v. Higgs, the SC Supreme Court ruled that an unsigned certificate of insurance evidencing Workers’ Compensation is not valid unless it is dated, signed, and issued by an authorized representative of the insurance carrier.

In this case, a general contractor accepted and relied upon a certificate of insurance issued by its subcontractor’s insurance agent. The certificate of insurance was issued in error by an employee of the insurance agency and it was not signed. The court reasoned that the general contractor should have investigated why the certificate of insurance was not signed and should have placed a phone call to the insurance agency to investigate. Such a phone call would have uncovered the fact that the policy was not in force and the certificate was not valid.

The SC Workers’ Compensation Commission issued Section 42-1-415 (A) stating that in order to transfer liability to the Fund, the higher tier contractor “must collect documentation of insurance … on a standard form acceptable to the commission”.

To read the entire ruling, click on this link: http://www.judicial.state.sc.us/opinions/displayOpinion.cfm?caseNo=26594

Contractors’ Insurance Annual Checkup – What Is It And Why Do I Need It?

admin — Mon, 26 Jan 2009 17:43:23 +0000

Our agency conducts annual insurance checkups for our contractor clients, and I am often asked “Why is this necessary or recommended since updated information has already been provided in the renewal applications and over numerous phone conversations that occur throughout the year?”

The purpose of the contractor annual insurance checkup is to review your current coverages; to determine if your coverages and limits are adequate (example: have you signed a contract that requires higher limits?); to determine if your key employee structure has changed, and to find out if anything new is going on with your business.

Your insurance agent is not necessarily the first contact you think about when you change your operations or buy something new (unless you need proof of insurance). The time to discover you forgot to let us know is NOT after you’ve had a loss.

During the annual insurance checkup, we will review your Workers Compensation, General Liability, Business Auto, Contractors Equipment, Bonds, Umbrella and Builders Risk (if applicable) and make risk management recommendations using our custom checklist tool. We can also provide you with quotes for Life Insurance, Key Man Life Insurance and Group Health Insurance.

As your business grows, or you downsize your operation, your insurance needs change. Also, the education that you receive will likely result in maximum premium savings.

In addition to meeting with your agent to discuss your business changes and needs, it’s also a good idea to do an annual checkup with the agent who handles your personal insurance.

Working together, we can help you protect your valuable assets by providing the right coverage at the lowest possible cost.

Surviving Your Insurance Audits – What Contractors Need To Know BEFORE The Auditor Arrives

admin — Fri, 09 Jan 2009 14:23:42 +0000

Insurance Audit – just these simple words can trigger very negative emotions for a contractor! In this blog I will attempt to help prepare you for your next Workers Compensation and/or General Liability audits.

To begin, both of these policies are based on estimated numbers (employee payroll, uninsured sub payroll, amounts paid to insured subs, gross receipts, etc.) since you don’t know exactly what they will be at the end of the policy term. Usually you will be contacted by the auditor 30 to 45 days after the expiration of the policies requesting an appointment to meet with you and review your records.

The insurance auditor will want to review the following:

W-2’s (employee payrolls)
1099’s (subcontractor payrolls)
ledger statements
certificates of insurance on your subcontractors (please make sure that the policy effective and expiration dates on your subcontractor’s certificate are in line with the dates of their service; sometimes you will need to have more than one certificate on your subcontractor).
Job duties of your employees and subcontractors — this is needed to make sure that they are properly classified according to insurance rules and regulations

After the insurance auditor meets with you and reviews the above information, he will go back to his office and “count the beans” to determine whether you overpaid or underpaid your premiums. He will then send his report to the insurance company. Depending on the outcome, you will either receive a return premium or additional premium invoice along with a copy of the audit worksheets. Please be sure that you understand audit additional premiums are due and payable in full within 30 days of the audit, unless it’s being disputed.

Due to confidentiality laws, your insurance agent will not be given a copy of the audit worksheets unless you give your permission during the audit. I strongly recommend you give your permission. If you do dispute your audit you will need your agent’s help during the process. Without the audit worksheets there won’t be much we can do for you.

When the insurance auditor arrives at your office I recommend that you have a comfortable, quiet place for them to work, and have all of your paperwork ready and organized. Make sure that the person who is to meet with the insurance auditor has cleared their calendar so they won’t be interrupted with phone calls, office meetings, etc. Treat the auditor as a respected guest and not as the “enemy” — offer them the same amenities you would offer to any other guest. Remember, they are people too and are there to do their job. I’ve dealt with many insurance auditors, and their main complaints are that when they get to their appointment the records, people, place to work, etc. are not available and the insured was rude. Their negative impressions may not be the “whole story”, but it can make a difference. Believe me when I tell you they don’t want to be in your office any longer than absolutely necessary!

Are All Contractors Required to Carry Workers Compensation?

Admin-SH — Wed, 07 Jan 2009 19:57:14 +0000

I have been in the insurance industry for longer than I care to say, and there are numerous myths that seem to endure over time. In an attempt to put these myths to rest I will be be discussing some of the more “common” ones in a series of blogs.

One of the most common ones regarding Workers‘ Compensation for a General Contractor (builder and remodeler) is: “I’m not required to carry Workers’ Compensation under state law because I don’t have four or more employees”.

The fact is that this is more complicated than it seems at first glance. For purposes of determining the employee count, most state laws also count uncompensated officers as well as employees of sucontractors. In addition, state laws count the total number of employees during an entire year, and not the average number of employees at any given time.

If an employer is required to carry Workers’ Compensation but does not do so, the injured worker can file his Workers’ Compensation claim with the state’s Uninsured Employer’s Fund and will get paid the traditional benefits. The state’s Uninsured Employer’s Fund will then file a lien against the non-complying employer for the amount of the payout and can levy substantial fines against the employer in addition to the benefits.

After I tell my client this, their next response is sometimes “Can’t I file the claim under my General Liability policy?”. The answer to this is very simple – “No”, as these types of claims are excluded.

Contractors: Accurately Project Payrolls & Subcontractor Costs

admin — Fri, 02 Jan 2009 14:44:41 +0000

I was talking to a new business prospect the other day (I’ll call him Steve), gathering information to quote the insurance for his residential construction business. When I asked Steve about his employee payroll and any amounts paid to uninsured subcontractors, he stated that he wanted to underestimate them so he wouldn’t have to pay so much money upfront. After all, the economy is rough and he thought he might be better equipped financially to pay the additional premiums after the audits had been completed.

This thought process is more common than you might think, and it is extremely dangerous! During my years in the insurance industry I’ve seen way too many businesses go bankrupt because of underestimating their payrolls and gross sales.

The reality is that additional premiums resulting from an audit are due within 30 days and can NOT be financed. If you can’t pay the audit additional premiums when due the insurance company will cancel your current policies. Once your policies are canceled, along with any certificates of insurance that may have been issued, your business comes to a halt. No insurance = no certificates; no certificates = no jobs. In addition, the insurance company will turn the unpaid debt over to a collection agency, which will impact your credit score.

The next thing I usually hear when I explain this is: “Well, I’ll just get insurance with another insurance company and/or agent.”

Unfortunately, unpaid audit premiums must be disclosed on the insurance applications, as well as the reason for your prior insurance policies being canceled. Believe me when I tell you that no insurance company is going to write a policy for you if you owe another insurance company money. Their reasoning is that you didn’t pay the other company, so you probably won’t pay them either. If you don’t disclose the information on the applications then you have committed fraud, which is a blog topic all in itself.

In conclusion, the best course of action is to be as accurate as possible when estimating employee payrolls and subcontractor costs to minimize large audit additional premiums. It’s much easier to spread the premiums out over months than to try and come up with the money in 30 days.