Whether you are a new contractor just getting started, or your business has been rocking and rolling for 30 years, workers’ comp can create one of the most costly experiences to your bottom line if you aren’t careful. For this blog, let’s go over workers’ comp for contractors.
One area of insurance we focus specifically on is contractors. From one man shops to businesses with hundreds of employees, we’ve built insurance programs for each level of your business.
Maybe you’ve seen some of our other videos that discuss different discount and payroll reporting programs that might be available to you. Those programs can be great, but that’s only part of the battle. Workers’ comp for contractors can be a tough road to navigate alone. Let’s go over the basics.
Workers’ Comp Problems
We said this can become costly if you don’t do this right, but now? Let’s go over a few ways:
- Your employees aren’t classified properly
- Are you collecting certificates of insurance from subcontractors?
- If you just 1099 everybody, do you even need workers’ comp?
- Quick answer: you’re only delaying the bill that’s going to be coming, and it will come. You’ll find it in the mail from your workers’ comp insurance company after your audit saying you owe thousands, if not tens of thousands of dollars.
We see this happen far too often.
A contractor takes a policy out with their agent, they add minimal, if any, payroll, and then a year later you are hooting and hollering because you get a massive audit bill in from the company.
Then if you don’t pay the bill, they will cancel you for non-payment.
Now much like your credit score, your business insurance score takes a hit, and good luck getting better rates anytime in the near future.
Okay…so how do we prevent this from happening?
How to Avoid Workers’ Comp Problems
This required a detailed, up front conversation with your agent before you take your policy out.
There are some important questions that need to be discussed.
What kind of work are you doing?
Are you a plumbing contractor that dabbles in roofing and blacktop sealing on the side? If so, stop it.
But the reason I bring this up is because we have to understand everything you may be doing in the course of the year. Workers’ comp for contractors can get expensive quick. Every single contractor code has a different rate assigned to each. In order for you to have the most accurate premium up front, we need to covering you for each line of work properly. This requires you to keep accurate records as well so you know what your paying for each line of work–you have records for flooring work done, for drywall, for HVAC work. If you don’t separate this out, your insurance company is automatically going to charge you the highest rated code for all the contracting work being performed.
So it’s obviously to your benefit to do this right up front.
What If I Sub Out All My Work?
Okay, that’s fine, but two quick things here.
First thing’s first: some companies don’t like insuring general contractors. You want to make sure your agent and insurance company know this going into it. The last thing you want is to be cancelled by your insurance company two months into a new policy because someone got their wires crossed on what you actually do.
Why You Should Always Collect Workers’ Comp Certificates
The biggest thing to remember here, and I cannot stress this enough…
It’s so important I’m going to say this again…
I CANNOT STRESS THIS ENOUGH…
If your business uses subcontractors–maybe you bring in a drywall guy, electrician, plumber, HVAC, whatever it is–you do NOT let them on your jobsite until they have provided you with a certificate on insurance from their agent showing they have an active general liability and workers’ comp insurance policy.
There are several ways to take this a step further to provide extra protection for you, but we will discuss that later.
I’ve personally seen all kinds of crazy things happen here: certificates provided that weren’t even for the subcontractor–it was someone else’s insurance, certificates for expired policies, and so on.
It’s crucial to bring your agent in on this to make sure you get this system down right.
Two things can happen if your sub does not provide you with a certificate of insurance:
- If they don’t have workers’ comp insurance, you will be the one footing the bill after your audit because you’ll have to pay premium for the job they performed for you.
- If they get hurt while performing work on your job site, they can claim workers comp benefits on your policy. And guess what? When that happens your workers comp renewal will get hit with an increase.
“I 1099 Everybody. I Don’t Have Employees.”
Another common thing we hear in this space.
“I 1099 everybody. I don’t have employees, their all independent contractors.”
Good luck with the IRS on that one especially since the definition of independent contractor changed.
Remember #2 up there that we just said? If your “independent contractor” don’t have their own coverage and get hurt, guess whose insurance is paying their hospital bills? Yours.
A Poor Experience Mod Can Cost You Jobs
This next element has to do more with experienced contractors, but it’s also very important to remember as you are getting started.
When it comes to bidding jobs, one thing that is typically a requirement is submitting what is called your experience modification.
We discuss that in more detail in another video, but on the basic level a 1.00 is the industry average. If yours is higher than a 1.00, that means you’ve had claims within the last few years and it will put you at a disadvantage and sometimes even disqualify you from the bid process.
If yours is above a 1.00, then we need to talk. Not only is this costing you additional premium, it may be costing you jobs.
Next Steps
If you own a contracting business and have employees in Kentucky, and have more questions about your workers’ comp for contractors, give us a call at 606-679-6311 or email me at asheridan@rbisomerset.com. Check out our other videos for your contracting business.
We look forward to working with you.
