Subcontracting
Do I need to provide Worker's Compensation Insurance to my Subs?
Somebody needs to… It’s either you provide it or they get it themselves. General contractors typically need to ensure that all workers on a project, including subcontractors, have workers’ compensation coverage. If subcontractors lack their own insurance, the responsibility falls on the general contractor. This protects against work-related injuries and avoids legal and financial penalties.
Best Practice 1: Ask ALL Subs to provide a Certificate of Workers Compensation Insurance for your file.
It is important that you check with any Subs prior to hiring to make sure that they have their own Workers Compensation Insurance. Keep all Subs Certs in a file for easy access when audited. This will waive their expense on your Workers Compensation Audit.
What if my Subs says they are exempt from Workers Comp?
If Subs tell you they are exempt from needing Workers Comp, be careful! You may be the one paying for their Workers Comp if you don’t do your research.
Best Practice 2: Collect proper WC exempt documentation.
This may include proof of exemption certificates, waivers, or filings with the appropriate state authorities.
This may differ by state. In the state of Pennsylvania:
Sole Proprietors with no employees: Most carriers will accept a letter from the Sub on their letterhead stating that they had no employees and therefore do not require Workers Compensation insurance. It should list the dates that they did work for you (or the dates of your insurance coverage period)
LLCs with no employees: Most carriers will accept a letter from the Sub on their letterhead stating that they had no employees and therefore do not require Workers Compensation insurance. It should list the dates that they did work for you (or the dates of your insurance coverage period)
Corporations: Must carry workers’ compensation, so they will need to file and be approved for a formal Application for Exemption Form with the Department of Labor. Most insurance carriers will accept an approval letter from the DOL that shows they were exempt during the time period they were working for you. Please note, this cannot be backdated so it is important to request this prior to starting a job.
Issuing a 1099 Form to an individual does not automatically classify them as a subcontractor
The insurance company could consider them an employee (and require you to provide Workers Comp)
if they are working for you regularly.
Employee
- Typically receives a regular wage or salary
- Follows a set schedule and work hours determined by the employer
- Usually an ongoing relationship with regular work available
- Operates under the direction and instruction on employer
- Uses tools and equipment provided by the employer
Subcontractor
- Paid per project or task, often based on a contractual agreement
- Sets their own schedule and work hours, within project deadlines
- Typically a temporary or project-based relationship or intermittent work
- Operates independently and controls how work is performed
- Provides their own tools and equipment necessary to complete the work