How Can I Avoid Having to Pay Workers Comp Premiums on My Subs?

“All my workers are subcontractors.  How can I avoid having to pay premium at audit time on my Workers Compensation policy?”

The simplest and most fool proof way to avoid owing Workers Compensation premium at audit on the work of subcontractors is to always obtain a certificate of Workers Compensation insurance from your subcontractor.  A Workers Compensation certificate will be regarded as proof by the auditor that the worker was an independent contractor and not an employee unless other evidence demonstrates it to the contrary.

“But my subcontractor’s don’t have employees and don’t carry Workers Compensation insurance.  Is there anything else I can do?”

Yes, but the alternative steps are more involved and may not always be enough to demonstrate that the worker is an independent contractor and certainly won’t keep you out of problems if they have others work with them or for them, for example their family member or even friends helping out when they are sick or on vacation.

Be sure you create a subcontractor file to show to the Workers Compensation auditor that contains the following:

  • A copy of a written contract with the subcontractor
  • A copy of the subcontractor’s business license
  • A copy of the subcontractor’s business card and professionally printed invoice
  • A referral list of other customers the subcontractor has
  • A copy of the subcontractor’s yellow pages or Internet advertisement
  • The location of the subcontractor’s office outside of his home
  • A photo of the advertisement on the side of the subcontractor’s vehicle
  • A copy of the subcontractor’s current certificate of liability insurance

The purpose of the above items is to demonstrate that the subcontractor is in business for himself and offers his services to the public at large.

Also, make sure that the subcontractor sets his own time, uses his own methods, buys his own materials and uses his own equipment and has the opportunity to make a profit or have a loss on the job.  A key factor is that you are not controlling the subcontractor’s time or work methods.

Be sure to keep such files up to date!

While the above steps are not fool proof they will go a long way to avoiding having to pay Workers Compensation premium under your policy for what you pay to them.