As a business owner especially if you are ar general contractor, your line of work may require that you hire independent contractors. What you do after that could mean the difference in thousands of dollars at audit time.
To avoid any surprises you should follow these steps to avoid paying more than you should:
1. Make sure each independent contractor has their own Work Comp coverage.
If you engage the services of an independent contractor who does not have Workers Compensation insurance, guess what? The law may hold you responsible for their work related injuries. This means that you will pay an additional premium for either their payroll or the contract price if you do not have payroll records. Either way, it falls under your work comp policy.
2. Request and Secure Certificates of Insurance.
For independent contractors, you must provide proof of workers compensation coverage at audit time. To avoid paying additional premiums, you need to secure a Certificate of Insurance that states the independent contractor has Work Comp insurance. Keep this certificate in your file for your premium audit.
3. Make sure independent contractor has adequate GL limits.
Here at Joyce Jackman & Bell we advise our clients to hold at least $1,000,000 per occurrence limit and we strongly suggest their independent contractors’ insurance match the same limit. In this day and age, 300,000 or 500,000 limits can be eaten up pretty quickly and don’t adequately protect you. For the sub contractors, the cost is minimal. As I often like to say, "Don't sacrifice alot to save a little".
4. Keep your payroll segregated by classification.
Your workers compensation and general liability policy may have been assigned two or more classifications of operations. You, as the employer, must keep appropriate records showing a correct and verifiable segregation of payroll between the assigned classifications on your work comp policy. If your records fail to properly segregate the payroll by the assigned classifications, the payroll of all employees will fall into the classification carrying the highest rate. This can result in a big premium at audit time. Lesson here - make sure payroll records match up with workers compensation policy classifications.
Andrew Bell is a Business Insurance Specialist with Joyce, Jackman & Bell Insurors.