Workers Compensation with Subcontractors

Subcontractors

Best Practices if you use subcontractors

Subcontractors & Certificates of Insurance (COI)

Collecting COIs from every subcontractor helps verify that your subcontractor actually carries the insurance they claim to have.

We recommend you confirm insurance with EVERY subcontractor.

General Liability COI
AND Workers Compensation COI OR written proof that they are not required to carry it.

Before work begins, verify:

✔ Workers’ Compensation

✔ General Liability

✔ Policy effective dates

✔ Insurance limits

✔ Certificate holder information

If required by your contract, ask for:

Additional Insured
Waiver of Subrogation
Primary & Non-Contributory wording

Contact HTA for a Subcontractor Checklist.

What If a Subcontractor gets hurt?

If a subcontractor is injured while working for you and they do not have their own Workers’ Compensation insurance (or proper exemption documentation), your Workers’ Compensation policy could end up paying the claim.

In some situations, you could also be responsible for additional premium during your audit.

A 1099 Does Not Automatically Mean Someone Is a Subcontractor

Issuing a 1099 form does not automatically make someone a subcontractor.

For Workers’ Compensation purposes, insurance companies may look at how the person works for your business, not just how they are paid.

Understanding the difference between an employee and a subcontractor can help you avoid misclassification issues and unexpected charges during your Workers’ Compensation audit.

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Employee

A worker may be considered an employee if they:

Receive regular wages or ongoing pay
Follow a schedule set by your business
Have regular or ongoing work available
Work under your direction or instruction
Use tools or equipment provided by your business

Subcontractor

A worker may be considered a subcontractor if they:

Are paid per project or task
Work under a contract or service agreement
Set their own schedule within project deadlines
Work independently and control how the job is performed
Provide their own tools and equipment

What If My Subcontractor Says They Are Exempt?

If a subcontractor says they are exempt from Workers’ Compensation:

Be careful and do not rely on a verbal explanation
Ask for documentation showing why they are exempt
Keep the documentation on file for your audit
Make sure the documentation applies to the dates they worked for you
Confirm state-specific requirements, since exemption rules can vary

Without proper documentation, you may be responsible for their Workers’ Compensation exposure during your audit.

Pennsylvania Guidance

In Pennsylvania, the documentation you collect may depend on how the subcontractor’s business is structured.

LLCs with No Employees

Many carriers will accept a signed letter on the subcontractor’s letterhead stating that they have no employees and are not required to carry Workers’ Compensation insurance.

The letter should include the dates they worked for you or the dates of your insurance policy period.
Sole Proprietors with No Employees

Many carriers will accept a signed letter on company letterhead stating that the LLC has no employees and is not required to carry Workers’ Compensation insurance.

The letter should include the dates they worked for you or the dates of your insurance policy period.
Corporations

Corporations are generally treated differently.

If a corporation is claiming an exemption, they may need formal exemption approval or documentation from the appropriate state authority.

This documentation should be requested before work begins, because exemption documentation may not be able to be backdated.

What Subs may not need Workers Compensation?

Top 5 Mistakes Business Owners Make

Hiring subcontractors without getting a current COI.
Assuming a 1099 worker is automatically a subcontractor.
Waiting until the audit to collect insurance certificates.
Accepting expired insurance certificates.
Not requiring subcontractors to carry the proper insurance.

Trying to track down subcontractors months later during a Workers’ Compensation audit is one of the most common reasons businesses end up paying additional premium.