Worker Compensation

Workers’ Compensation protects the builder from injuries to employees and uninsured subcontractors.  It provides no fault coverage for medical bills, lost wages and death/disability resulting from job related injuries. The coverage is provided without a deductible to the employee (the employer may receive a reduced cost by choosing a deductible).

1. All builders need Workers’ Compensation coverage even if all subs are insured

2. We recommend that your contract require everyone on a jobsite be covered by Workers’ Compensation.  Your contract should include an acknowledgement that if the subcontractor rejects Workers’ Compensation and later seeks benefit from you or your coverage that he is committing insurance fraud.

3. You should know how employees are treated as opposed to subcontractors:

• Employees may not be charged for Workers’ Compensation
• Subcontractors may be charged for Workers’ Compensation and the builder is not limited to what they may charge

4. You should know the difference between employees and subcontractors by common law determining factors:

• Control – means, manner and method of work
• Skill
• Pay – by task or hour/week
• Nature of relationship they believe they have
• Who supplies tools?
• Can person be hired or fired?
• Can person work for others?

5. You should know the difference between employees and subcontractors by IRS determining factors:

• Instructions – means, manner and method of work
• Training – do you provide any training?
• Integration
• Services rendered personally?
• Hiring, supervising, paying assistants
• Continuing relationship
• Set hours of work
• Full time required
• Location of work – at company’s place of business?
• Order or sequence of work – directed by you?
• Oral or written reports required?
• Payment by hour, week or month?
• Payment of business and/or travel costs?
• Tools and materials – provided by you?
• Significant investment- do they have equipment to perform services?
• Profit or loss potential – is there exposure to loss?
• Working for more than one employer?
• Making service available to general public
• Right to terminate w/o liability for work to be done?

6. Know how annual costs are calculated – what is charged as payroll?

• Employee payroll includes:
  • Gross wages or salaries
  • Bonuses
  • Commissions
  • Overtime pay (excluding bonus portion)
  • Holiday, vacation and sick pay
  • Employee payments to profit sharing plans
  • Payments or allowances for employee tools
• Employee payroll does not include:
  • Employer payments to group insurance plans
  • Severance or dismissal pay
  • Bonus portion of overtime pay
  • Expense reimbursements if documentation exists that validates the expenses
  • Uniform allowances
  • Perks (club memberships, incentive trips, or discounts on services)
• Subcontractor payroll includes:
• Gross amounts paid for Labor only if sub labor is separated from material (percentages are not allowed) or if sub only provides labor
• 50% of gross amounts paid for Labor and Material (if billing does not separate labor from material)

7. Classification of supervisory employees

• Code 5606 applies for superintendents:
  • Over employees - exercises operational control indirectly through job supervisors or foremen
  • Over subcontractors - exercises operational control indirectly through the subcontractor’s job supervisor or foreman.  A sole proprietor subcontractor with no employees prevents use of this classification as there is no supervisor or foreman for the subcontractor.
• Code 5645 applies for employees:
  • Engaged in direct supervision of any person directly in charge of any employee doing actual work
  • Engaged in rough carpentry work (framing, siding, door and window installation, external trim work)
  • Engaged in trim carpentry work (if you employ other carpentry trades)
  • Engaged in drywall
  • Engaged in roofing
  • Engaged in general labor
  • Engaged in job site clean up during the course of construction
  • Engaged in multiple tasks without time sheet documentation to support separation to eligible classifications
• Code 5645 applies for uninsured subcontractors:
  • Engaged in any carpentry activity, including roofing and drywall
  • Engaged in general labor
  • Engaged in job site clean up during the course of construction

8. Experience rating – key dates

• Experience rating anniversary date
• Claim valuation date

9. Drug testing requirements (5% state mandated credit for carriers other than self insured programs):

• Post hiring drug test
• Random drug testing of at least 25% of employees
• Post accident drug test

10. Deductible credits are now available and can help reduce costs for builders with larger annual Workers’ Compensation costs