I’m a Subcontractor
Does a subcontractor need workers’ compensation insurance?
As a subcontractor, you most likely aren’t legally required to get a workmans’ comp policy. However, you may need to buy one for yourself to get hired for certain jobs.
You’ll know if you need a workers’ comp policy when you apply for a job, because they’ll require it in your contract or ask you for a Certificate of Insurance (COI) before you start.
Need a workers’ compensation policy to qualify for a job?
If your employer is asking for a Certificate of Insurance, they are just looking for proof that you have an insurance policy. It’s starting to become the norm for everyone to have their own insurance policies in many industries, especially dangerous ones like construction. Get covered with a workers’ compensation policy, right now.
Employers typically want you to cover yourself with a workers’ compensation policy for two reasons.
- If you have your own insurance, they won’t get charged by their insurance company for your payroll at the end of the year.
- They won’t be liable if you get hurt or sick while working for them.
Because you are a free agent, employers don’t want to be held responsible for you. So if you want to get hired, you might need a workers’ comp policy to be considered for certain jobs.
It’s a good thing to have.
And don’t worry, typically what you make on your first job will pay for the policy; it’s a pretty inexpensive coverage. Besides feeling great about landing the job, you will feel secure and protected in case you get hurt on the job and can’t work for a while.
It’s a good idea to have separate workers’ compensation policies, anyway.
If a general contractor hires you and claims they have sufficient workmans’ comp coverage in place, it doesn’t mean they actually do. Maybe they had a policy, and it was about to come up for renewal, and they let it lapse because so far, there hasn’t been a claim.
But if something were to happen, and there is no actual coverage, things could get messy.
What happens if there’s an incident and I don’t have coverage?
If you don’t get your own insurance because you think you’re covered on their policy, you’ll be out of luck. You will have zero coverage, and you’ll be out of work.
That’s why we always recommend that subcontractors have their own coverage in place: One bad injury could put you out of business.
What other kinds of insurance do subcontractors need?
The kind of insurance you need depends on what you do, but you may be required to have a general liability insurance policy or professional liability policy, among other types of business insurance policies.
I’m Hiring a Subcontractor
Most small businesses hire subcontractors or day laborers from time to time to help out with their business. At certain times of the year, you’re slammed with work and can’t possibly handle it all, so having some subcontractors on hand can be crucial.
However, there are a few things to keep in mind when hiring a subcontractor for your business.
Do I need workers’ compensation for subcontractors?
Yes, you need to provide them with coverage, or they need to have their own policy. Workmans’ comp is important, especially in high-risk industries like construction.
If a subcontractor doesn’t have their own workers’ compensation policy, you’ll be liable if they get hurt while doing work for you. That is, unless they have their own insurance.
Are subcontractors covered under my workers’ comp?
Technically, yes. If the subcontractor does not have their own workers’ comp coverage in place, they are covered under your policy, and you will be charged for their payroll.
Even if you don’t add a subcontractor to your policy, insurance companies will audit you at the end of the year and charge you for the payroll either way (unless you provide them a Certificate of Insurance, or COI).
Not always. In many states sole proprietors are not provided with coverage unless they have their own policy and have chosen to be included in that policy. Ultimately, it’s not worth taking on the risk, so it’s better to require them to have their own policy.
How to handle workers’ compensation for subcontractors
- Add the subcontractor to your own workers’ compensation policy. All you have to do is give the insurance company an estimated amount of payroll for that year.
- Require the subcontractor to provide their own workers’ comp insurance. If you don’t want to cover your subcontractors, just ask them to provide a Certificate of Insurance (COI) before they start the job. You’ll need to provide that to the insurance company when the audit comes around if you don’t want to get charged for their payroll.
Workers’ comp audits
If you hire an uninsured subcontractor, that means you’ll have to take on the financial responsibility. Your insurance company will charge you for any uninsured subcontractors on your workers’ compensation policy come audit time, so why not just insure them from the start?
And if the subcontractor is a sole proprietor, he or she may not be covered– but their employees will be.
How will the insurance company know I hired subcontractors?
Insurance companies do a standard audit at the end of each year. When that time comes, they will ask for your tax records. There, they’ll see the total amount you paid for contracted work.
Since the price of a workers’ comp policy is based on your payroll, you will be charged for any subcontractors that have done work for you.
I don’t want to be charged for hiring subcontractors.
Well, you’ll have to show the insurance company that your subcontractor has their own insurance. So before you hire a subcontractor, make sure you get a Certificate of Insurance (COI) for your records.
What if I don’t have workmans’ comp, either?
If you don’t have a policy, and they don’t have a policy, then you’ll have to pay for the subcontractor’s medical bills out of pocket if they get hurt while working for you. It’s always better to have proper insurance in place than to scramble when something happens.
Potential risks of hiring uninsured subcontractors
- You’ll be charged additional workers’ comp premiums at audit for any uninsured contractors.
- Your business’s financial strength will be at risk.
- Increased loss exposure, which could affect your Experience Mod.
- You’ll be liable if they get hurt on the job while working for you.
- You are risking the cancellation of your own workers’ compensation policy if you have claims from uninsured subs.
Need insurance for yourself or your subcontractors?
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