In today’s construction market, it seems that more and more general contractors are hiring subcontractors to do specific work. As a general contractor, it is important to make sure your subcontractor has the right insurance or you may be responsible for their worker's compensation claims.
For example
A General Contractor, ABC Company, hires a Subcontractor, XYZ Subcontractors, to do framing work on a building. XYZ Subcontractors agrees and sends a crew of 3 for work, but fails to provide a Certificate of Insurance indicating they have worker's compensation insurance. ABC Company does not follow up with XYZ Subcontractors and one of the subcontractor’s workers is injured. XYZ Subcontractors indicates they do not have worker's compensation coverage and ABC Company now will have to report the injury of the subcontractor to their own worker's compensation carrier as one of their employees. Thus, ABC Company is now responsible for the injured employee from XYZ Subcontractors.
IF HIRING A SUBCONTRACTOR YOU SHOULD:
- Request a copy of a Certificate of Insurance in a timely manner.
- If they are unable to provide one and you end up hiring them, you just took on a subcontractor as your employee.
- What’s the risk? Any injury they would sustain on the job would be your responsibility and your worker's compensation carrier must be notified of the injury.
If you can prove that all of the following apply to this person, then your worker's compensation carrier is not responsible for the claim.
- Maintains a separate business with his or her own office, equipment, materials and other facilities.
- Holds or has applied for a federal employer identification number with the federal internal revenue service or has filed business of self-employment income tax returns with the federal internal revenue service based on that work or service in the previous year.
- Operates under contracts to perform specific services or work for specific amounts of money and under which the independent contractor controls the means of performing the services or work.
- Incurs the main expenses related to the service or work that he or she performs under contract.
- Is responsible for the satisfactory completion of work or services that he or she contracts to perform and is liable for a failure to complete the work or service.
- Receives compensation for work or service performed under a contract on a commission for per job or competitive bid basis and not on any other basis.
- May realize a profit or suffer a loss under contracts to perform work or service.
- Has continuing / recurring business liabilities or obligations.
- The success or failure of the independent contractor’s business depends on the relationship of business receipts to expenditures.
If the independent contractor meets all of the nine conditions above then he/she is not your responsibility at the time of injury.
If all the criteria are not met, then your worker's compensation carrier is responsible. It is assumed that the employer is held responsible for the independent contractor until the above requirements are met.
If you have questions, please feel free to contact your trusted advisors in our claims department at Hausmann Johnson Insurance.
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