In the state of Minnesota, a business with employees is required to carry workers compensation insurance. This provides coverage for employees in the event of a work-related injury. Seems easy enough, right?
Well, things start to get a little more complicated when the use of subcontractors is introduced. Why? Because the definition of “employee” becomes a little less clear, and when it comes to work related injuries, it seems this definition becomes very very broad.
Because of this, it is imperative that general contractors require all subcontractors to carry their own workers compensation insurance and show evidence that it is in place. This is one of the best ways to show that a subcontractor is not an employee. Insurance carriers will look for certificates of workers compensation insurance from all subcontractors come audit time. If a certificate is missing, the general contractor will be charged as though the subcontractor is an employee. This can create some unexpected costs. In addition, the use of an uninsured subcontractor can impact loss history which in turn may increase future workers compensation rates.
What if a subcontractor is not required to carry workers compensation insurance?
We get this question a lot. Some subcontractors are self-employed individuals. They do not have any employees, and therefore do not need to carry workers compensation insurance. Some subcontractors are family operations and may not be required to carry workers compensation for family members.
Though the law may not require these entities to purchase workers compensation, general contractors may still be required to show a workers compensation certificate for them at audit. If a certificate of insurance is not provided at audit, additional premium may be charged. This goes back to the seemingly broadened definition of “employee” come claim time. Carriers will look to collect premium from uninsured subcontractors because they ultimately run the risk of paying out a claim for them.
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Megan Corradi MSc, CPCU, ARe megan@steininsurance.com