Business owners purchase insurance to limit liability against different risks. It may tempt you to pick one policy over another to cut on costs. This may be detrimental if the policies are not interchangeable.

In this article, we will look at the benefits of Builder’s Risk and Workers Compensation, and why you may need both.

Workers Compensation Insurance

Workers Comp limits liability and financial responsibility for injury of a sub-contractor on he job.

The laws that determine if a worker is a sub-contractor or an employee vary from state to state. So how do you determine the difference? Most states classify workers who receive a W-2 tax form as employees. Those who receive a 1099 form are classified as contractors.

However, depending on the state you need to get Workers Compensation insurance for those with the 1099 form. The worker is a subcontractor if:

• You pay them
• If you hire and dismiss them
• You exercise control over performance and time of work.

What benefits does the policy offer to my business?

Medical coverage for occupational injury 

If a sub-contractor receives and injury while on the job, the insurer will cover:

• Doctors’ fees
• Physio therapy
• Medical tests
• Medication
• Medical equipment e.g. prosthetic limbs

For example, a sub-contractor falls off a ladder while painting and breaks their leg. You will receive reimbursement for any expenses after lodging a successful Workers Comp claim.

Workers Compensation for sub-contractors compensates for lost wages

Your Workers Comp policy replaces the lost wages and will make sure that a sub-contractor doesn’t suffer financially during their recovery period.

For example, the sub-contractor will receive a percentage of their regular wages during recovery.

Disability benefits 

Disability wages replace income lost due to injury. The sub-contractor is spared financial setbacks from unemployment.

Provides rehabilitation benefits

Workers Compensation for sub-contractors is beneficial to sub-contractors who would like to change jobs or switch careers after injury.

Your insurance caters to the costs associated with learning a new skill.

Builder’s Risk Insurance

Unlike Workers Compensation for sub-contractors, Builder’s Risk covers damages to a structure under construction. A basic policy will also include loss and damage to materials, equipment and temporary structures. However, some policies offer additional covers. This includes debris removal, loss of profit, damage of equipment, and temporary structures.

Builders Risk covers:

• Fire: It always pays to protect your business from the financial liability from damages caused by sudden fire. For example, electrical equipment catches fire due to faulty wiring. Furthermore, insurance will cover the repairs, cost or wages and damaged materials
• Vehicle and aircraft damage: Working close to an airstrip or highway poses danger to your site. During periods of low visibility or slippery roads, vehicles may drive through your construction site.  For instance, bad weather conditions cause a helicopter to crash land on your building site causing widespread damage.
• Coverage against theft or vandalism: Vandalism and theft of building materials or equipment is rampant in most job sites. For example, a painter may have to paint over graffiti.

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Workers Compensation for sub-contractors is just as important to your business as Builder’s Risk insurance. Their benefits are not interchangeable. We will help you secure both policies. Get in touch with our insurance agents at Contractors Liability call 888-819-1228. We can help.

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Did you know that the market size of the worker’s compensation insurance industry is estimated at $48.3 billion during the current year, and is expected to reach 3% higher than the previous year?

Workers’ compensation insurance is a policy that safeguards you and your employees from work-related injuries or illness by covering medical expenses, lost wages, and other similar costs.

Businesses in every state require this policy if they have one or more employees working in the area of risk-intensive jobs. On the other hand, small business owners who work for themselves and do not have hired any employees are exempt from purchasing workers’ comp insurance.

In this article, we will review workers’ comp insurance, what its benefits are, any state-specific requirements, and any exclusions related to its policies.

Do You Need Workers’ Compensation Insurance For Your Business with Zero Employees?

If you are an independent contractor and wondering whether you need workers’ compensation insurance with no full-time or leased employees working for your business, you’ve come to the right place!

The simple and straight answer is no! You do not require to be covered with workers’ comp insurance when you don’t have any employees. However, having insurance may bring you a number of benefits that are discussed in the later section of the article.

Do States Require Workers’ Comp Insurance?

Workers’ compensation law varies by state. Usually, businesses that have one or more employees are entitled to purchase the policy. Generally, independent general contractors and self-employed individuals who do not have employees working under them are not required to buy worker’s comp insurance.

If you hire subcontractors, you must purchase a worker’s comp policy, as it is legally required as per all states’ laws.

Small business owners, independent contractors, sole-proprietors with no employees can purchase a worker’s compensation policy for self-insurance to cover medical expenses and lost wages in the incident of a work injury.

In many states, it’s a prerequisite for acquiring a general contractor’s license for many professionals who are looking to work in construction, demolition, repair, and maintenance projects.

State-specific Exemptions

General contractors and small business owners in all states except Texas must have workers’ comp insurance for employees. Each state has its own set of exemptions as per state laws, so you must check the insurance requirements in your state.

If you are a small business, LLC, independent contractor, or a sole-proprietor, you are not required to have worker’s comp coverage as per the law. However, you may be required to have coverage before you sign a contract for your next project with the construction client.

In many states, insurance carriers also cover employer’s liability insurance benefits that protect the business owners against lawsuits filed by employees for not preventing workplace injury. In this case, it covers court costs, attorney’s fees, settlements and judgment costs, and similar expenses.

Independent Contractors and Workers’ Comp Insurance

If you are an independent contractor with no employees, it’s not mandatory for you to get workers’ comp insurance coverage by law. If you have a number of employees working in your small business setup, you are required to have covered.

However, comp coverage might be required for self-employed or independent contractors to get a project in high-risk jobs such as construction, demolition, and similar work areas.

Simply put, a workers’ comp certificate of insurance can help you acquire required licenses and competitive projects as it ensures you have coverage against work-related injuries.

Workers’ compensation insurance cost is based on location, payroll, coverage limits, the number of employees, claims history, risk mitigation, and other similar factors.

Benefits of Workers’ Compensation Insurance

Workers’ compensation coverage ensures that employees are taken care of in case they are injured on the job site. The insurance company also protects small contractors and business owners from financial losses by paying the injured employee’s medical expenses.

In many states, contractors who do not have proof of workers’ compensation insurance policy are not considered eligible to work in risk-intensive areas such as construction sites or demolition projects.

If incidents resulting in work injury become long-term or permanent injuries, worker compensation may cover partial benefits; however, it varies from state to state. This is called maximum medical improvement (MMI).

In addition, if the work-related injury leads to death, the kin of the insured person will get survivor’s benefits.

Workers’ comp insurance covers expenses for:

• Medical bills
• Injured workers
• Lost wages
• Survivor’s benefits

Independent Contractors without Employees

If you are an independent general contractor with no employees, you may still have workers’ compensation insurance coverage requirements to get partial coverage for medical expenses, hospital bills, and lost wages, if you are injured at a job site.

Self-insurance coverage protects sole proprietors and independent contractors from financial damages in the incident of injury. You will not have to pay for the medical expenses that can be a financial burden.

If you do not have worker’s compensation insurance coverage, you are liable for all the medical expenses and hospital bills. Your clients will not want to deal with the hassle and additional costs that job-site injuries bring along.

It’s a good idea to invest in workers’ comp, as many insurance plans might not cover you for job-site injuries even if you are paying higher premiums.

Independent Contractors with Subcontractors

If you hire subcontractors and not employees, you are responsible for purchasing workers’ compensation coverage as per the state law you work in. Even if the subcontractors are covered with their own workers’ comp insurance, you may still need to purchase the same to cover them for medical expenses and lost wages if they get injured at the workplace.

So, if you have part-time employees who are subcontractors, or other employees working with you that may or may not be categorized as employees, you are responsible for checking if they are covered with their own workers’ comp insurance. You must keep the certificate of insurance on file for proper documentation.

Business owner’s insurance bundled with workers’ comp covers any work-related injuries for business owners. Personal health insurance may not provide coverage for medical bills, hospital expenses, and lost wages, particularly when you are involved in high-risk job roles.

Another benefit of getting workers’ comp insurance is that if the workplace injury leads to death, family members of the deceased will get survivor’s benefits.

Get Peace of Mind with Workers’ Compensation Insurance through Contractors Liability

So, if you are a small business owner with no full-time employees working under your business, you can still get workers’ compensation insurance. It will help you claim for medical expenses, hospital bills, and lost wages should any workplace injury occur.

Contractors Liability’s skilled insurance agents can guide you throughout the workers’ compensation insurance purchase process, depending on your state-specific requirements.

Get your workers’ comp certificate of insurance faster by discussing your business-related needs with experienced insurance brokers.

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Let us start with the basics. Contractors are constantly using the word employees when describing the people that work for them. In most instances this is wrong. A person that receives a 1099 at the end of the year for the money they earned is legally an independent contractor. The IRS has recently changed how these payments are named. Previously they were reported on a 1099 Miscellaneous Form (1099-MISC).

Now they are required to be reported on a separate 1099 Non-Employee Compensation Form (1099-NEC). There has been no change in any tax consequences as a result of this change. However, it does show that the IRS intends to start strictly enforcing the rules concerning 1099-NEC payments and W-2 payments.

What Is 1099 Non Employee Compensation

1099-NEC, is also known as payments from a business to an independent contractor from a business to persons that provided services to the business. Contractors as a general rule like to treat labor costs this way for a number of reasons. If you keep reading I will let you know the main reasons contractors prefer this way for payment. The IRS has very strict guidelines that set forth the definition of an Independent Contractor for tax purposes.

The general rule is that an individual is an independent contractor if the party making the payment has the right to control or direct only the result of the work. They are not allowed to dictate what will be done and how it will be done.

Facts that provide evidence of the degree of control and independence fall into three categories:

• Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
• Financial: Are the business aspects of the worker’s job controlled by the party making the payments? These include things like how a worker is paid, whether expenses are reimbursed, who provides tools, materials, etc.
• Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue after  the project is complete? Also is the work performed a key aspect of the business, such as roofing company paying someone to supply labor  to install a roof. Businesses must weigh all these factors when determining whether a worker is an employee or   independent contractor. Some factors may indicate that the worker is  an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent  contractor and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

At the end of the year, the person receiving payment is issued a 1099-NEC to be used in filing their tax return. Generally, no money is withheld for taxes. Further, the party making the payment has no obligation to pay “payroll taxes” on the money paid.

What Is A W-2 Worker?

Under IRS rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. People treated as employees are given a W-2 Form at the end of the year and use that information to file their tax returns.

Federal and State taxes are withheld from an employee’s earnings and are paid to the government. The employer is also required to pay directly to the government certain taxes as well based on the amounts paid to the employee.

Why Does the Classification As A W-2 Employee VS 1099-NEC Independent Contractor Matter?

There are two huge differences this classification make when it comes to the business owners bottom line they are as follows:

Taxes:

The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. Combined, the FICA tax rate is 15.3% of the employee’s wages. With a 1099-NEC the payer only pays the amount on the 1099-NEC, there is no requirement to pay federal taxes. So there is a large tax savings with a 1099-NEC.

Insurance:

With insurance, a contracting company with employees will pay more for their general liability insurance than a company with no employees. The reasoning is with more employees the greater the chance something can go wrong. The huge difference comes into play with workers’ compensation insurance. If you have employees the amount you will pay in premiums is based on your payroll. In riskier trades such as roofing, Workers Compensation Premiums can be 50% or more of your payroll costs.

So for example, if you had W-2 workers that you paid $100,000 in payroll your Workers Compensation premium could be $50,000 or more a year. If the people that did the work where 1099-NEC paid $100,000, you would have minimal Workers’ compensation premiums of around $1,500 per year.

Pro Tip

Mientras que usted puede pensar “pago a mis trabajadores por 1099-NEC”, ya que es más fácil y más barato, es necesario asegurarse de que realmente están cumpliendo con los requisitos de los pagos 1099-NEC. Si el IRS encuentra que en realidad debería haber pagado a los trabajadores por W-2, puede estar expuesto a responsabilidades y sanciones masivas. Nadie quiere que el IRS esté sobre su espalda.

Además, si un trabajador se lesiona como consecuencia de sus actividades y presenta una demanda diciendo que en realidad era un empleado, usted puede volver a cargar con las facturas médicas y las multas si resulta que deberían haber sido pagadas por W-2. Es necesario que se asesore bien con su contable o abogado sobre estas cuestiones.

At ContractorsLiability.com We think an informed client is the best type of client and we sincerely hope that this article was helpful and informative. If you have any Insurance questions please feel free to contact us at (866) 225-1950 or by email info@contractorsliability.com

The post What Is The Difference Between Workers That Are Given A 1099 Versus A W-2 At The End Of The Year? appeared first on Contractors Liability.

For a better understanding of a ghost policy, let us first understand what a workers’ compensation insurance policy is. Workers’ compensation is a type of insurance policy that provides wage replacement and medical benefits to employees injured while doing their job.

The employees, in return, will waive their rights to sue the employer for any form of negligence on their part. Workers’ comp policy is based primarily on the type of risk the contractor/company is exposed to and their payroll.

What is a Ghost Policy?

A workers comp ghost policy, also known as an “if any” policy, is a workers’ comp insurance policy for contractors with no employees on their payroll.

It is referred to as a ghost policy because there are no employees hired by the business to be covered under a workers’ compensation insurance policy.

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Why do you Need to Have a Ghost Policy

Contractors usually purchase a ghost policy because most projects require proof of a workers’ comp policy either by the project manager or state law.

That is mandatory to ensure that, in the event of the subcontractor hiring an employee, they can provide coverage for the employee.

For example, if a subcontractor bids for a project and gets the job, the general contractor will require them to provide their own workers’ comp coverage.

If they do not, they can lose the project, regardless of whether or not they have employees on their payroll. Ghost policies are recommended to contractors who work independently and have individual coverage but must show proof of workers’ compensation insurance coverage.

However, some insurance carriers cover any sub-contractors you 1099 throughout the policy period that do not provide proof of insurance naming you as additional insured.

It also includes the company that employs you to do the job; they are required, as you are, to collect certificates of insurance showing that any subcontractors hired have workers’ compensation coverage.

If they fail to collect these certificates, the amounts paid to these subcontractors will be treated as additional payroll for workers’ compensation purposes.

If the subcontractor is covered with a workers comp ghost policy and not workers’ compensation, any hired employees will not be covered for wage replacements, medical or indemnity benefits if injured on the job site.

Understanding the type of policy provided by a subcontractor before hiring is essential.

Suppose your contractor is covered with a ghost policy, not a full workers’ compensation policy. In that case, you must confirm with each new employee that they are providing their own liability insurance coverage.

How does a Ghost Workers Comp Policy Work?

The bill for an average Workers’ comp insurance policy depends on the classes of employees and the type of work they do on a percentage basis of payroll.

For example, if a roofer has a 15% rate of payroll, for every $100 you pay them as your employee, you would pay $15 in workers comp coverage.

However, you would have to pay nothing if, instead of an employee, that same roofer is a 1099 subcontractor with workers’ compensation insurance naming your business as additional insured.

The problem arises when you have a 1099 employee that does not have workers’ compensation insurance. In this case, they fall under your policy, and you will have to pay for workers’ compensation as if they were an employee.

That is because if they were injured, your “if any” policy would cover everything under a standard workers’ compensation, like the injury, lost wages, retraining, etc.

The insurance company is at risk of your sub-contractor getting hurt, and on the audit, after your policy period ends, they will charge you for this risk. If you are not planning for this, it is a bad day. So let’s look at this audit and how insurance is billed.

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Projected vs Actual

Your application is simply a projection of your business for a year regarding the number of employees, payroll, payroll class, coverage, and gross revenue. It does not reflect what your premiums will be in reality.

The actual premium is made every year about two months after the end of the policy period, at an audit required per your application.

The premium you agree to at the application means nothing until it is audited.

If your payroll is less than projected, you will get your money back at the audit. If your payroll is more than projected, you will have to pay more. Most people understand this and agree with this.

The major problem we have run into in audits is the lack of certificates of insurance naming you as additional insured. Simple as that.

Uninsured sub-contractor = Employee

That said, if you hired our roofer and paid him 30,000 and he did not have insurance coverage, you would owe 15% (4500 dollars), and the money is due within 30 days, or your policy gets canceled.

If you let this happen, you will be in a database of unpaid audits by your name and birthday, and it will not be possible for you to obtain workers’ comp insurance from any company, for all insurance companies subscribe to this database.

State Requirements and Limitations

Workers’ compensation needs vary from contractor to contractor, as well as from state to state. Most states require contractors to provide a workers’ compensation policy; however, only certain states accept ghost policies as a fulfillment of this requirement.

Regardless of your state’s requirements, if you are a contractor who regularly employs subcontractors or other employees, obtaining a complete workers’ compensation policy is mandatory to provide coverage and benefits for your employees in the event of an accident.

Since the price of a workers’ compensation policy is based on payroll, ghost policies are the market’s most affordable type of workers’ compensation policy and, therefore, easily abused.

In an accident, your workers must have adequate coverage; without sufficient workers’ compensation, you could be held personally responsible for wage losses and medical expenses.

How much is a Workers Comp Ghost Policy?

The cost of these workers comp policies is around $1200, but it depends on your state.

Understanding this cost is protecting your customers as much as you. You need to ensure you are correctly figuring out the cost of your labor and passing that cost on to your customer. In our roofing situation, adding 20% to your labor costs for insurance would be a good idea.

Furthermore, ensure your application is still in line by evaluating your year halfway through and checking your projections. Be strict about your certificates of insurance; if someone does not have it, charge them for it, and set money aside for the additional audit.

You can pass this cost on to your customers if you plan correctly. If you do not, the subcontractors will rarely come forward with money when you are audited.

List of States and Ghost Policy Availability

Please refer to the table below for the list of states and ghost policy availability. For states where ghost policy is unavailable, we always have the option for you.

Workers’ comp ghost policy may not be an easy type of policy to find, and not every insurance agent is willing to do the work for you. However, this list is constantly changing as some carriers may offer coverage to various class codes.

In any case, call us at 855-461-3143, and we can check for you. We will be able to give you updated information and have additional low-cost solutions to meet your workers’ comp coverage needs.

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