Subcontractors without workers compensation will cost you
Since the recession, insurance companies have stepped up their enforcement policies related to business owners hiring uninsured subcontractors. “Many companies switched employees from W-2 to 1099s to reduce employment overhead, and one of those expenses that was affected was a pleasant reduction in insurance costs. But when that happened, many of the subcontractors never got insured on their own, so by default they were still unintentionally being covered under the GC’s policy,” Downs says. According to Downs, insurance companies have had the right to charge for uninsured subcontractors for nearly two decades, yet choosing not to renew was not exercised as readily during the boom, provided the carriers collected their retroactive premiums to which they were entitled—now it’s a very different story. He says if a business owner is caught once, or in some more generous situations, twice using uninsured subcontractors, the insurance companies will drop them. Being dropped from an insurance company, blacklists business owners and finding a new insurance company often means higher premiums.
15 Q&A About a Workers Compensation Audit
Tracking down and verifying insurance certificates from subcontractors can easily be put to the side, except for when the insurance audit rolls around. Every year, Patterson sits down with an insurance auditor to verify insurance coverage and make sure premiums match the labor hours estimated in the beginning of the year.
Although any type of audit is not fun, Patterson’s insurance agent, Scott Downs, CRA, senior consultant at Downs & Associates Inc., based in Herndon, VA, says it may mean different things for different people, depending on the diligence of the business owner.