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Worker’s Compensation for Subcontractors: Do You Need It?

Published by Robert J Stillwell on April 17, 2019


In part two of this series, we briefly reviewed the audit. One of the things that will come up in your audit is whether or not you have any 1099 payments to subcontractors or independent contractors. If you are a contractor or general contractor and you use subcontractors to perform work on your behalf – the information contained here is vitally important.

HERE’S THE DEAL: If you use subcontractors and they don’t have their owner Workers Comp coverage OR you don’t have proof of their Workers Comp coverage, your insurance carrier will charge you for payments made to your subcontractors as if those payments were payroll to your own employees.

If you are a contractor or general contractor and you use subcontractors to perform work on your behalf – the information contained here is vitally important.

Breaking down a complicated issue:


This can be a complicated topic, so we’ll go over this in more detail:

  • You can do this by having them send you a Certificate of Insurance, which they can get from their agent.
  • Take note of the effective dates of coverage and make sure they have coverage in the time frame they’re working for you.
  • Keep copies of the Certificates of Insurance – you’ll need to provide these at your audit. It’s recommended that you keep copies of these certificates for at least 7 years.

What if my subcontractor does not have insurance?


A subcontractor doing work for your company, without their own Workers Comp coverage, can file a claim under your policy if they’re injured while working for you. The insurance company will charge you for this as if the 1099 payments made to the subcontractor were wages to your own employees.

Legal & State Requirements for Workers Compensation for Subcontractors


Let’s say that you hire a subcontractor who has no employees and therefore (at least in Pennsylvania and New Jersey), is not required by law to carry Workers Comp coverage. What happens then? Unfortunately, the legal requirements of your subcontractor and the terms of your insurance policy are going to conflict. Your insurance company will still charge you.

The reason they will charge you is because the subcontractor, if injured on a job working for you, can file a claim under your Workers Comp policy, and the carrier will likely be required to pay it.

And, yes, this would still apply even if you have the subcontractor sign any type of waiver of their coverage. These types of waivers rarely hold up in court.

A business with no employees can still obtain Workers Comp coverage if the owner elects to include themselves for coverage. There aren’t any voluntary market carriers that offer this; however, it can be obtained through the Pennsylvania’s State Workers Insurance Fund, or through New Jersey’s Assigned Risk Program.

Practices to implement to protect your business

There are some things we’d recommend you implement to protect yourself and your business:

Establish Requirements for Coverage by Contract

You should always have written agreements in place with your subcontractors. A signed and written agreement is a way to formalize your relationship and add in a layer of protection. Typically, insurance companies like to see a Hold Harmless agreement and Indemnification agreement in the contract.

In the agreement, you should not only require that your subcontractors carry General Liability and Workers Comp insurance at the same limits as your insurance policies, but require that they provide you with proof of coverage.

It is a best practice to have your subs name your business as Additional Insured on their General Liability policy. If you do this, make sure it’s a requirement in your written agreements, or else the Additional Insured endorsement may not apply. You cannot not be named as Additional Insured on a Workers Comp policy.

Communicate with Your Contractors

In my experience, the requirement to provide proof of coverage is an often over-looked part of the contract (assuming your subcontractor reads it in the first place). I’ve found that communicating this requirement verbally helps to get the proof of coverage prior to a project’s start, which can help you to avoid delays in getting the work completed.

Have Documentation

Invoices, paid receipts, certificates of insurance, job dates and project details should all be kept together. Create a file for each job and make sure you have the relevant information before the job starts, adding to it during the project and after its completion.

Back up your files to the cloud and/or make copies in case of a fire or computer/server failure.

Having this information organized and readily available will make your audit easily completed.

Lack of documentation can lead to additional premiums at audit and the possibility of significantly limiting your own insurance coverage

How might this relate to my General Liability Coverage?

It’s important to get proof of your subcontractors General Liability coverage as well. Some of the potential risks you run if your subs don’t have coverage include:

  • An additional premium, similar to how they charge you on the Workers Comp
  • Higher deductibles – Some policies include a higher deductible for subcontractors if they are uninsured.
  • Excluded coverage – Some policies even exclude any losses originating from subcontractors

Even if your policy has a premium charge for using subcontractors, it’s important to review the specific terms and conditions as outlined by the various forms and endorsement of your policy.

What if I don’t have time to go through this process?

So by now, we understand what needs to be done to protect your business and protect you from additional and unnecessary additional premiums. But what if you don’t do any of this?

Allowing a subcontractor onto the jobsite without their own coverage is a significant risk to your business.

Not only could you be on the hook for Workers Comp premium for that sub, if they are hurt on the job, it could be a claim on your policy, leading to increased premiums over the long term.

Most insurance carriers are wary of policy holders who use uninsured subcontractors because they are risks the carrier isn’t planning for. It’s common for policies to be canceled or non-renewed if uninsured subcontractors are used with any regularity.

What can I do to ensure my subcontractors are covered?

For now – here’s what to do:

If you’re having trouble putting this all together, need support in setting up systems or processes, or have a unique situation that you’re not sure how to address, call me (215-643-3490 x23) or email me ( or click HERE to submit your contact info through our website and we’ll get in touch with you soon. We can walk through any problems you may be having and offer solutions.

Looking for more?

This post is part of a series aimed at providing more information about Workers Compensation. Any additional information we’ve published will be linked here as they get posted:

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