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Is Your Subcontractor Truly a Subcontractor?

Subcontractor or Employee?

Subcontractor and insurance, Huff Insurance, Pasadena MDThe term “subcontractor” gets thrown around a lot in your industry, however based on IRS, Workers Compensation and General Liability Insurance policy definitions these people are not really subcontractors.  Are you using subcontractors to do work for you that employees would normally do or are you using subcontractors because they have specific skills or licenses that you do not have for a specific job?   The answer to this question is very important in determining your exposure.

If you use uninsured subcontractors, you are facing the probability of the following occurring:

  • There may not be any coverage under your liability insurance policy for the negligence or liability of the subcontractor
  • You maybe held responsible for the injuries to the subcontractor and/or their employees if they are injured while working for you at a job site
  • Possibly that the subcontractors will be picked up on your audit as employees causing you a large additional premium.

Anytime that you use a subcontractor the following should be required;

  • Subcontractor Agreement signed by parties, stating the scope of the operation, what exactly is to be done and the requirements of the subcontractor.
  • Certificates of insurance should be maintained on all subcontractors and should be updated annually at a minimum, but preferably at the beginning of each new job
  • Subcontractors should be required to provide their independent contractors business license and it should be kept on file
  • Even when you have subcontractors that you are subcontracting to and have certificates many times there will still be a charge on your liability insurance for the subcontractor.   The reason is because if the subcontractor is negligent you will still be sued and if their coverage is not sufficient you would then potentially have excess coverage under your policy.

If you answer yes to any of the following questions, the individual contract laborer in question, is most likely an employee.***

  • Is the person paid by piece, hour, day or week?
  • Does the person perform work that regular employees of your business perform?
  • Is all or a majority of the work that is the general nature of your business, performed by contract labor?
  • Do you provide the material for the jobs?
  • What does the subcontract specify?
  • Do you tell them when to work?

In all cases, if the individual/contractors (without worker’s compensation insurance coverage) in question, hires labor to help perform work, the individual would be consider as an uninsured contractor and the amounts they were paid would rightfully be included with payroll/wagers on your audit, and you maybe held responsible by the workers compensation commission to provide them workers compensation coverage if there would be a claim.

*** This is not an all inclusive list; please consult your accountant and/or attorney in determining if a subcontractor is really an employee or not according to IRS and the workers compensation commission

If you use independent contractors you need to beware of the new laws for Maryland was effective October 1, 2009!

SB 909 amended the Labor and Employment Article.  This bill creates a presumption in the workers compensation law that an individual in the service of an employer is an employee and not an independent contractor. As a result, the burden will now be on the employer to prove that a worker is, in fact, an independent contractor (free of the employer’s control, paid other than hourly, not provided tools or materials, etc).

If your subcontractors do the following:

  • Are doing work that would normally be done by employees
  • You provide them with their equipment
  • You have the right to hire/fire them
  • You tell them HOW the work needs to be done
  • You provide them with the jobs to do each day

Then they are not subcontractors they are employees and you do need to provide workers compensation coverage for them. 

You need to hold your subcontractors to the same standard that you are being held to by your contracts.   If you are using subcontractors then please call us to discuss.  We can tell you the charge on your liability insurance and workers compensation insurance coverage.  Call Huff Insurance 410-647-1111.

Huff Insurance is a full service Independent Insurance Agent We have been dedicated to Protecting Lifestyles™ since 1960. We offer a full array of Personal Insurance, Commercial Insurance and Life Insurance & Health Insurance products. Call us at 410-647-111

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