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Hiring subcontractors is often necessary to get parts of the job done—just be sure they are appropriately insured. Before their work commences on your job site we recommend you take the following steps to protect your affiliate:
1) Obtain a copy of their Certificate of General Liability Insurance that names your affiliate as an additional insured on their policy, and shows limits and dates of coverage.
By requiring the certificate, you have proof that they have liability insurance in place. And by asking that your affiliate be named as an insured on their policy, you are protecting yourself for any incident which may arise as a result of their work.
2) Get a copy of the subcontractor’s Certificate of Workers’ Compensation Insurance.
This shows that they have adequate coverage for themselves and their employees. If the contractor, or one of their employees, is injured while working on your job site, the injury would be covered by the contractor’s Workers’ Compensation Insurance. If the contractor does not have Workers’ Compensation Insurance, your affiliate could become liable, which is something you want to avoid.
Be aware that if your subcontractors don’t have their own Workers’ Compensation coverage, the exposure of the contractors’ employees will be placed on your Workers’ Compensation policy as uninsured subcontractors when your policy is audited, and you will be charged a premium.
How the Workers’ Compensation Audit Works
During a Workers’ Compensation audit, it is common for affiliates to report uninsured dry wall subcontractors. Unfortunately, uninsured dry wallers come at a cost of $9-$27 per $100 of payroll (depending upon your state). For example, if a drywall contractor without Workers’ Compensation Insurance performs $2,000 worth of work, that work would be picked up in your audit, and would mean an added cost of $180 to $540 to your affiliate.
As well as you owing this additional premium, uninsured subcontractors can have a significant impact on your loss history and Workers’ Compensation Insurance rates in the future. Many states have deemed that the general contractor is responsible for the losses of any injured employee of an uninsured subcontractor. Therefore, if a subcontractor’s employee is injured on the job and the subcontractor does not carry Workers’ Compensation insurance, the medical bills and lost time wages could be picked up by your affiliate’s Workers’ Compensation policy. These losses can have a direct impact on your insurance rates, and will result in higher Workers’ Compensation premiums.
In a few states, sole proprietors may elect whether or not to be covered under Workers’ Compensation regulations, and could potentially be a risk for becoming an “uninsured” subcontractor. Arkansas, Arizona, Colorado, Florida, Indiana, Kentucky, Maryland, Michigan, Oklahoma, Tennessee and Texas allow this exemption option. To be classified as “exempt,” each state has a specific form that must be completed, signed and filed by the sole proprietor before they begin working for your affiliate, and they cannot have any employees.
It’s important that your affiliate has a copy of this filed exemption form, or proof of Workers’ Compensation coverage, to provide to the auditor for the period the subcontractor performed their services, or the carrier will assess a premium based upon the payroll/contract price for the “uninsured” subcontractors.
In order to protect your affiliate and avoid hassles, you should require any subcontractors that you hire have the appropriate insurance coverages in place, and that you have a Certificate of Insurance as proof before they begin work.
If you have any questions about this information please call the Habitat for Humanity Affiliate Insurance Program at (888) 553-9002.