Do Subcontractors Need Workers’ Compensation Insurance?

May 2024
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As a contractor, you are probably aware of the importance of having workers' compensation insurance. Due to the high risk that most construction and job sites pose toward workers, subcontractors, contractors, and project owners can face the risk of litigation or monetary loss based on certain incidents. Because of this, it's important that subcontractors take the necessary steps to protect their employees as well as themselves and their business.

What is Workers' Compensation?

Employers are legally required to provide a safe working environment for their employees. Moreover, if anything goes wrong while on the job, workers' compensation protects employees from personal liability and can also cover the cost of medical visits if necessary.

Since 2023, SB 216 in California requires all contractors, regardless of whether they have employees, to carry workers' compensation insurance. Authored by State Sen. Bill Dodd, the Senate Bill aims to address the issue of small contractors falsely claiming to have no employees while hiring day laborers or undocumented workers, who would otherwise have to pay for medical expenses out of pocket in case of injury.

The law was implemented in two phases, with high-priority sectors such as concrete, heating and air conditioning, asbestos abatement, and tree service contractors being required to comply by 2023. By January 1, 2026, all contractors, including new license applicants, must have workers' comp insurance, except those organized as joint ventures with a filed certificate of exemption.

The Benefit of Having Workers' Comp As a Subcontractor

  • To Meet Compliance Requirements: Subcontractors are typically mandated to have insurance, either by state regulations or by the requirements set by the project owner or general contractor. Furthermore, subcontractors with one or more employees are subject to the same liability obligations as larger firms.
  • Your Business is Trusted More: Many general contractors refuse or are very wary of working with uninsured subcontractors because of the liability that it can bring.
  • It Can Protect You During Unavoidable Litigation: Insurance is crucial for subcontractors as it covers legal expenses in the event of litigation, even if they are not directly at fault for damages. This ensures that subcontractors are protected without having to pay these costs out of pocket, safeguarding their financial stability.

Extra Considerations:

When purchasing workers' compensation insurance, it's important to consider various factors to ensure you are making an informed decision. Here are some extra facts to keep in mind:

  • Legal Consultation: It's recommended to consult with a lawyer before signing any contracts or obtaining insurance to ensure proper understanding and compliance.
  • Double Compensation Prevention: An employee who has claimed workers' compensation is generally not permitted to also sue their employer for the same injury.
  • Fraudulent Claims: Of the $10 billion in workers' compensation claims filed each year, 10-30% are fraudulent.
  • Coverage Scope: Workers' compensation covers immediate injuries and long-term ailments caused by repeated exposure to harmful conditions, such as dangerous materials, even if symptoms manifest after employment has ended.

It's always a good first step for subcontractors to research and understand the specific workers' compensation insurance requirements of the state in which they operate. Compliance is often mandatory in states where workers comp insurance is required. Even in states where it is not mandated, obtaining workers' compensation insurance is still advisable. It will not only make your business more competitive when bidding for job opportunities but can also provide protection against potential liabilities that could lead to litigation.

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