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Sometimes surprises can be delightful. Like discovering that last quarter you need to get a candy bar out of the vending machine deep in the recesses of a coat pocket.

Learning that you’ll have to pay for workers’ compensation coverage for a subcontractor when you weren’t expecting it — well, that’s a whole other kind of surprise.

Having a little information up front about what type of coverage your subcontractors carry, and whether your state truly classifies them as independent contractors (versus employees) can help you avoid a not-so-happy surprise during your annual workers’ compensation audit.

Determining whether a subcontractor could be considered an employee

The first thing you need to know is that your state and the IRS may have different criteria for establishing whether a subcontractor can be considered an independent contractor (for which you don’t need to provide workers’ compensation coverage) versus an employee (for which you must provide coverage in most states).

This means even subcontractors that qualify as independent contractors for tax purposes, might still be considered employees by state standards.

Every state is a little different, but most require that the subcontractor have control over the method and manner in which the work is completed, among other criteria to be considered independent contractors.

Here’s information on classification of workers in some of SFM’s core states:

Steps you can take to ensure subcontractors are covered

Any subcontractor that uses employees is required to have its own workers’ compensation policy. In this case, you’ll want to get proof of coverage by asking for a certificate of insurance.

That’s easy enough.

It gets a little more complicated when your subcontractor is an individual working alone as an independent contractor.

Again, your first step is to verify that the subcontractor truly qualifies as an independent contractor under state law. Even when subcontractors carry workers’ compensation insurance, if they don’t qualify as independent contractors, you’ll still be responsible for providing coverage.

In most states, independent contractors aren’t required to carry workers’ compensation coverage for themselves, but they can choose to do so. If your subcontractor does have coverage, request a certificate of insurance for verification.

What to do if a subcontractor doesn’t have coverage

If the subcontractor doesn’t have workers’ compensation coverage:

  • Request a copy of the subcontractor’s independent contractor registration form if applicable in your state. Some states have a registration process for independent contractors, and some don’t. Otherwise, ask for a copy of the subcontractor’s current license.
  • Check to see that the subcontractor is registered with the state as a business entity.
  • Request a Certificate of Insurance for General Liability covering the dates the work was performed with limits of at least $300,000.

When in doubt, ask

Determining whether a subcontractor qualifies as an independent contractor can be tricky sometimes. Don’t hesitate to ask your underwriter or your agent for help. That way you’ll understand the implications for your workers’ compensation premium right away, rather than finding out you owe more than you expected at the time of your premium audit, or worse yet, after an injury occurs.

For more on ensuring subcontractors are covered, see our Q&A video on the subject:

This is not intended to serve as legal advice for individual fact-specific legal cases or as a legal basis for your employment practices.