Subcontractors without Workers’ Compensation Coverage May Cost You

Hiring an uninsured subcontractor poses a significant liability to your organization. This liability can affect your workers’ compensation premium substantially.

Workers' compensation programs are mandated and managed at a state level across the U.S. Each state except Texas requires businesses with employees to provide workers’ compensation insurance coverage for injured workers. The employer is still legally responsible for the employee’s injuries. Subcontractors are business entities independent of your company or organization; they are not your employees. Because of this, you do not need to carry workers’ compensation insurance for subcontractors.

However, business owners must have proof that a subcontractor has workers’ compensation coverage and must verify its validity—here’s why.

If a subcontractor does not have its own workers’ compensation coverage, the exposure of the subcontractors’ employees will be placed on your workers’ compensation policy as an uninsured subcontractor when your policy is audited, and you will be charged a premium for their payroll.

In addition to the additional premium due, uninsured subcontractors can have a significant impact on your loss history and workers’ compensation rates in the future.  Many states have deemed that the general contractor is responsible for the losses of any injured employee of an uninsured subcontractor. That means if a subcontractor’s employee is injured on the job and the employer does not carry workers’ compensation insurance, the medical bills and lost-time wages could be picked up on the affiliate workers’ comp policy.  Prior losses such as this have a direct impact on your insurance rates, and will result in higher workers’ compensation premiums.

In order to avoid these hassles, you should require any subcontractor you hire to have the proper insurance coverages in place as well as a workers’ compensation certificate of insurance before they begin working on the job.

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For specific questions about workers’ compensation and other business insurance coverages, contact your local Marsh & McLennan Agency representative.