Subcontracting
Best Practices for Workers’ Compensation Insurance if you have Subcontractors
Do I Need to Provide Workers’ Compensation for Subcontractors?
Someone needs to carry Workers’ Compensation coverage — either your business or the subcontractor.
In many cases, general contractors are responsible for confirming that all workers on a jobsite, including subcontractors, have proper coverage.
If a subcontractor does not have their own Workers’ Compensation policy:
- Your business may be responsible
- You could face legal or financial penalties
- A work-related injury could become your liability
Before work begins, always verify coverage and request a current Certificate of Insurance.
Best Practice 1: Request Workers’ Compensation Certificates
Before hiring any subcontractor, ask for a current Certificate of Workers’ Compensation Insurance and keep it on file.
This helps you:
- Confirm the subcontractor has their own coverage
- Keep records organized for audit purposes
- Avoid having the subcontractor’s payroll included in your Workers’ Compensation audit
Keeping subcontractor certificates in one place can make your audit process smoother and help prevent unexpected costs.
What if my Subs says they are exempt?
If Subs tell you they are exempt from needing Workers Comp, be careful! You may be the one paying for their Workers Comp if you don’t do your research.
Best Practice 2: Collect proper WC exempt documentation.
This may include proof of exemption certificates, waivers, or filings with the appropriate state authorities.
This may differ by state. In the state of Pennsylvania:
Sole Proprietors with no employees: Most carriers will accept a letter from the Sub on their letterhead stating that they had no employees and therefore do not require Workers Compensation insurance. It should list the dates that they did work for you (or the dates of your insurance coverage period)
LLCs with no employees: Most carriers will accept a letter from the Sub on their letterhead stating that they had no employees and therefore do not require Workers Compensation insurance. It should list the dates that they did work for you (or the dates of your insurance coverage period)
Corporations: Must carry workers’ compensation, so they will need to file and be approved for a formal Application for Exemption Form with the Department of Labor. Most insurance carriers will accept an approval letter from the DOL that shows they were exempt during the time period they were working for you. Please note, this cannot be backdated so it is important to request this prior to starting a job.
Issuing a 1099 Form to an individual does not automatically classify them as a subcontractor
The insurance company could consider them an employee (and require you to provide Workers Comp)
if they are working for you regularly.
Employee
- Typically receives a regular wage or salary
- Follows a set schedule and work hours determined by the employer
- Usually an ongoing relationship with regular work available
- Operates under the direction and instruction on employer
- Uses tools and equipment provided by the employer
Subcontractor
- Paid per project or task, often based on a contractual agreement
- Sets their own schedule and work hours, within project deadlines
- Typically a temporary or project-based relationship or intermittent work
- Operates independently and controls how work is performed
- Provides their own tools and equipment necessary to complete the work
Best Practices for a Smooth Workers’ Compensation Audit
To help prepare for your audit, keep organized records throughout the year.
- Subcontractor Agreements
Keep clear contracts outlining scope of work, payment terms, and insurance requirements. - Certificates of Insurance
Collect current COIs from subcontractors and confirm they carry Workers’ Compensation coverage. - Accurate Payroll Records
Track payroll and subcontractor payments carefully. If employees perform different types of work, keep payroll separated by job class.
Visit our Workers’ Compensation Audit page for a list of common documents and records requested during an audit.
