If you ever contract work to subcontractors – or do independent work for a client / general IT contractor – you may not know how to deal with Workers’ Compensation Insurance.
Who’s liable if someone gets injured? Is there subcontractor insurance? Are you covered by your client’s policy? It’s understandable to be unclear about these situations, especially as there’s no cut-and-dry answer for every state.
However, there are some general rules of thumb to remember if you want to be safe, whether you’re acting as an IT contractor or using IT contractors for your own client:
- Every party in the work relationship should carry its own Workers’ Comp Insurance policy.
- You can be liable for your subcontractors’ work injuries if they aren’t otherwise covered.
You Can be Liable for Subcontractors’ Injuries
This is a fact that surprises a lot of business owners. Contractors and subcontractors are responsible for themselves, right? Well, usually, but when it comes to Workers’ Compensation, things can get a little tricky.
In some states, if a subcontractor isn’t covered by Workers’ Compensation Insurance and they experience a work injury, the business contracting them is on the hook for covering the Workers’ Comp claim.
The biggest confusion for companies when it comes to this issue is “when the employee of a subcontractor files a claim and it lands on the company’s desk because the sub has no coverage,” says
Stan Lacy, a
Workers' Comp attorney with
Collins and Lacy (@CollinsandLacy).
“Clients want to know why they have to pay benefits to a person they did not employ or have never met. The only way to appease some of these clients is to explain to them how the statutory employment law works,” Lacy says.
Statutory employment is essentially this: a subcontractor hired by your business can be deemed your employee by law (or statute), if they’re injured while working for you and have no other way of collecting Workers’ Comp benefits.
In other words, they become your employee as far as your Workers’ Compensation policy is concerned, and they can make a claim on your policy just like any employee of yours could.
What you should do: If you hire contractors or subcontractors to work on your behalf, the easiest way to avoid liability issues is to:
- Require them to carry their own Workers’ Compensation Insurance.
- Verify their certificates of insurance to confirm they’re covered.
Alternatively, make sure they’re covered under your Workers’ Compensation policy (but note you’ll likely pay a higher premium by adding them to the coverage).
As a Contractor, Carry Workers’ Compensation Insurance
Now, what if you’re the one acting as a contractor or subcontractor and hired on by a client?
The facts are still the same as before, only the roles are reversed. Your client will likely require that you carry Workers’ Comp – even if you don’t have any employees – simply because your client doesn’t want to be liable for paying your medical expenses if you’re injured on the job. If you’re not covered, you could be considered their statutory employee, and they won’t want that.
What you should do: If you act as an IT contractor/subcontractor, make sure you…
- Check your state law to determine whether you’re required to carry Workers’ Comp.
- Look over the contract when taking on a job to see if the client requires you to carry Workers’ Comp.
Curious about what you might pay for this policy? Check out our resource “What is the Cost of Workers’ Compensation Insurance for a Small Business?”