Do I need workers' comp insurance for subcontractors?

Independent contractors work alongside clients for set durations, such as for a project or other established timeline. Contractors work directly for a client to ensure a project is completed in accordance with the contract terms.

Subcontractors, on the other hand, are hired by contractors to handle certain aspects of the project. They report directly to the contractor who oversees the project and ensures that work is done to a high standard.

For example, a general contractor is hired by a commercial landlord to oversee a major apartment complex renovation. The general contractor would then hire carpenters, electricians, painters, and other professionals as subcontractors for the duration of the project. The contractor would oversee the subcontractors and ensure they work toward the goals of the established contract.

When obtaining workers' compensation, employers must ensure their employees are properly classified to receive the appropriate level of coverage.

Your employee and subcontractor classification codes are important to get right, as improper classification codes can lead to legal and financial complications.

Employees, contractors, and subcontractors have distinct employee classifications with different tax and insurance requirements.

Here are just some of the ways they differ:

Employees receive W-2 IRS tax forms, and business owners are often responsible for withholding payroll taxes and providing health insurance. Employers set regular operating hours and provide a consistent work location, along with all the equipment employees need to do their jobs.

Most states require employers to carry workers' compensation for both full-time and part-time employees.

Generally speaking, contractors receive a 1099 form and pay their own taxes. They work on a contract basis for a set period. Contractors typically provide their own tools and set their own schedules.

Contractors are generally considered self-employed, so they are typically responsible for their own workers' compensation coverage unless otherwise specified in their contract or if they work in high-risk industries in certain states. 

Subcontractors are typically hired by a contractor and answer directly to the contractor for the duration of their contract.

Like contractors, subcontractors are considered self-employed and may be required to purchase their own workers' comp coverage depending on state law, industry, and contract requirements.

Workers' compensation laws vary by state. Most states require employers with any number of employees to carry workers' compensation. Sole proprietors with no employees often qualify for an exemption from carrying workers' comp, unless they work in risky professions, such as construction.

Subcontractors and other self-employed 1099 workers are often not required to carry workers' compensation insurance. However, many subcontractors choose to carry workers' compensation for themselves in case they are injured on the job, as personal health insurance often does not cover work-related injuries.

Many subcontractors also choose to carry the coverage because proof of coverage is often a requirement to sign an employment contract.

Independent workers are often not required to carry workers' compensation, and can qualify for a workers' compensation waiver for subcontractors. However, subcontractors are often encouraged to carry workers' comp for themselves, even when it's not mandatory. 

Without a workers' comp policy, subcontractors can be held responsible to pay medical costs and legal fees out of pocket if they were to get injured. This can financially devastate a subcontractor.

Examples of subcontractors who should strongly consider workers' compensation include:

Some states, such as California, require all construction industry professionals to carry workers' compensation, even sole proprietors and independent workers.

Other states, like Texas, do not require workers' comp for construction subcontractors unless they are working for government contracts. New York state laws do not require self-employed workers to carry their own workers' compensation insurance, but it is highly recommended.

For example, if a plumber suffers a back injury while lifting a heavy pipe on the job site, then their workers' comp policy would provide medical coverage.

Installation professionals, including HVAC and flooring installers, face serious risks during daily operations. Workers' comp will help cover medical expenses if an installer is injured on the job.

For example, if an HVAC technician falls off a ladder and suffers a chronic back injury, workers' comp would help cover ongoing rehabilitation services.

Landscaping professionals, such as tree trimmers, should carry workers' comp to navigate potential injuries.

For example, if a lawn service worker receives a laceration by a mower and needs to take time off for medical care and recovery, workers' compensation benefits would help cover medical costs and lost wages.

TechInsurance is a trusted insurance expert for all small business owners, including contractors and limited liability companies (LLCs).

Our licensed insurance agents are available to answer your questions and help you find the coverage that's right for your business needs.

With TechInsurance, you can easily download a certificate of insurance for your small business, often on the same day you buy workers' compensation insurance coverage or other types of insurance products.

This comes in handy for companies and consultants that need proof of insurance to sign a contract or a lease and don’t have time to call an insurance company for documentation.

Clients may ask for a certificate of workers' compensation insurance or other types of business insurance to show you’re insured.