Subcontractors and Work Comp

Written by Eric Petersen, CIC

Using subcontractors for some or all of your labor within your tree care company can be a smart strategic move for your business, however, it must be done correctly to avoid opening your company up to unnecessary exposures. While there are many exposures that tree care companies face with subcontractors, I want to focus this article only on the exposure that comes from an on-the-job injury to the subcontractor as it seems to be a misunderstood exposure that we often need to educate tree care company owners on.

You got it, this means we’re gonna talk about Workers’ Compensation and how it relates to subcontractors.

First thing first, everything that happens on a jobsite will flow upwards to the company that has the contract with the customer. On a typical tree care job that means the tree care company who is hired by the customer has the ultimate liability for what happens on that job including being responsible for any on-the-job injures.

While many tree care companies mishandle on-the-job injuries for their employees, it is often even worse when a subcontractor gets injured. Fortunately there is a pretty easy solution. I suggest doing all four of the items below, however, if you want to shortcut to #4, that is ultimately the one that matters the most.

1. State Law – Understand your state’s law on who qualifies as an independent contractor (subcontractor) and who will be viewed as an employee for an on-the-job injury. Most states have very similar rules on this and to oversimplify them (please, please, please check with your individual state directly to confirm this generalization), the question comes down to the amount of control the tree service has over the subcontractor. The more control the tree service has over the subcontractor, the less likely they will be viewed as a subcontractor. If they are injured and subsequently determined to not have met the criteria to qualify as a subcontractor, then the tree service will be responsible financially for the injury.
2. Workers’ Compensation – Make sure you have a work comp policy in force. If for some reason you or the subcontractor failed to ensure that the subcontractor met all of the requirements of your state to be viewed as a subcontractor then by having a policy in force, your Work Comp policy will pay for their on-the-job injury instead of you paying for it out of pocket.
3. Contract – Use a written contract with each subcontractor to outline the term of the business relationship and the required insurance policies that you want the subcontractor to possess. Unfortunately, this is a step that many tree services miss and therefore expose their business to paying for an on-the-job injury to a subcontractor.
4. Subcontractor’s Workers’ Compensation Policy – Get a copy of the subcontractor’s work comp policy (or Certificate of Insurance) before they step onto a jobsite for you. The key here is to get confirmation of their coverage BEFORE they start working with your team.

The last thing that I want to mention has to do with minimizing the issue with your Work Comp Audit if/when your subcontractors show up on the audit.

Remember, the ultimate cost of your Work Comp policy for the year is determined after the end of the policy reflecting the amount of payroll you had during the policy period. To determine the ultimate cost, the insurance company performs an audit and asks you to reconcile the premium that you’ve paid versus what is owed. If you had more payroll than estimated, you will owe more premium to the insurance company after the audit is completed. This becomes an issue when subcontractors are included in the payroll figure when they shouldn’t be.

Understanding and adhering to the four points above will remove the financial exposure created from on-the-job injury to a subcontractor.

If you would like more guidance on this topic or what the other exposures of subcontractors are to your business, reach out to an ArboRisk team member today.