I took 2 employees in late last summer. I'm having my first audit for workmans comp. The workmans comp insurance is saying that I have to pay workmans comp on sub-contractors too

Why on earth would I have to pay workmans comp on a sub contractor?

Workmans comp pays an employee a set amount of money for a certain time if they get hurt.

If a sub gets hurt, that's on the sub.

How would workmans comp even pay them?

"Well if it's not one thing

it's another."

-Rosanna Rosannadana

For several years the State Owned Agency of California for Workers Comp Insurance, State Fund, worked hand in had to change the State Law to limit employers options dealing with Workers Comp Insurance.

The State managed to make other insurance carrier to exclude workers comp insurance in their fire and liability policies. The did away with most employers being self insured.

Well, if this is truly the case and I have to pay workmans comp on someone who isn't an employee, it looks like my employees will be unemployed very soon.

Here's how I do mine.

I own rentals in:

Razorback LLC

Razorback and partner 1 LLC

Razorback and partner 2 LLC

I have another entity:

Razorback construction LLC

Razorback construction LLC has a workers comp policy and an employee. The employee does work for all 3 LLC's that own rental property. Razorback construction invoices for employee's time and materials.

If a sub is needed to do work on the rentals, the LLC that owns the property hires and pays the sub. So Razorback construction pays no subs and therefore doesn't pay workers compensation on the subs. If I ever start building or doing remodels for 3rd parties again then that will change and subs will have to have their own workers comp policy or a waiver.

You need to ask your insurance agent if there is any kind of waiver that you can have subs sign so that they are exempt from premium under your policy. Arkansas has a state waiver program. I googled PA but didn't find one. On the other hand since this situation has caught you by surprise it doesn't speak well of your agent for not informing you that this was the case regarding paying premiums on subs.

Razorback, I am sorry, I do not total understand.

We do not have employee. We own rentals. we have managementment LLC to manage our rentals.

I learnt to sign independent contractor agreement before. NO after I read here, It seems very good idea if we have contractor or anyone work for us to sign liability waiver.

Debbie. You're probably right! Luckily we just completed a project without a new one in sight.

Maybe I just won't get one for a while...

Fire the agent that sold you your policy.

I almost stepped into this trap and was advised of this pitfall by a great independent agent.

Your best bet:

Have the subs that have done work for you break their invoices from the past under scrutiny into

Labor

and

Materials.

You might be off the hook on the costs of the materials.

#22, I'm talking about things like my excavator and gutter guy.

He brings his machine from a previous job to my site, digs a ditch, fills a foundation and grades out the lot. Then he loads his machine up and take it to the next job.

He is NOT an employee.

The gutter guy (who actually is the same guy), brings his gutter trailer to the jobsite from his previous job, hangs gutters at my house and moves on to another job.

He is not my employee.

Another example is Demo jobs or clean out jobs.

I have one guy who does tons of different jobs. He could be roofing somewhere one day and dry-walling the next. I'll have him come and demo a room for a set price and remove the debris.

He is also not my employee.

I have an estate clean out guy who has a business of cleaning out buildings. He'll come and clean out a ranch house for $500-$700. He removes all the debris and goes to another job.

He's not my employee.

Good lord. I had never heard of this before.

Legitimate question, and I'm not trying to turn this into anything political: if we had universal health care in this country, would this no longer be an issue?

When you hire a contractor like your excavator he needs his own insurance and he needs to provide you with a copy of it.

If he doesn't have it than your insurance company will want you to pay for it. What your running into it seems is your hiring uninsured contractors.

The reason behind all this, is because if Bob has no insurance and he falls off the machine and gets hurt who pays for it?

From experience I'll tell you the answer its YOU!

Now that you have assets you need to be careful of this stuff, because if something bad happens they sue everyone and whoever has the deeper pockets pays more. Also don't for a second think LLC's will help you here.

You also take liability for whatever tools you provide. My uncle had to pay out over $200k for a nail gun accident about 10 years ago.

This is a fun game once you get a bit bigger than OSHA comes into the picture. My framer got nailed twice by OSHA. $10k for not using a proper platform to lift the guys with the LULL, and $2,500 a man times about 5-6 for not wearing harness's above the second floor.

I collect general liability insurance from these guys. This is what their insurance providers give to them. I've done that for years.

Workmans comp is say NOT GOOD ENOUGH!

That's the part I don't get.

When I set up payroll and workmans comp, I was told specifically that I couldn't get comp on myself.

Now, why would a sole proprietor, self employed sub

Contractor get workmans comp on himself?

Who is he going to sue if he's out working?

Himself?

I know I can't really compare this situation to when my guys are out working for owner occupant home owners, but for the sake of the argument, I will.

If my guys are out working on drywall at Dave and Sally's house and fall off the ladder, Dave and Sally may get sued. If Dave and small hire my guys, they

Should've asked for their insurance up front. What they would've got is a copy of a general liability policy.

A few years ago, I got a contractors registration with the state and was required to have liability insurance.

I did it, I no longer do it because I don't work on other peoples places, only my own.

In 10 years, this is the first time ever that I am heairibg that someone in my position has to pay workmans comp on a 1099 employed. Given the nature of the relationship, it doesn't make sense.

The IRS and the WC provider views employees and subs differently it seems.

I just looked over 2 of my guys insurance policies and it has a line item for workers comp right on their policies and it's labeled: N/A, right from the insurance company itself.

I'm not sure about all this, but I'm not going down without a fight with these people.

NE, take a step back and look again from insurance company perspective.

You are an employer who carries wc, they demand that everyone of your employees be included, you agreed to this when you signed the policy and that you pay premiums on everyone; all employees, subs or whatever you call them

If and only if, you can substantiate the claim that this subcontractor is not an employee and does carry his own wc policy will you be keeping your agreement with wc provider.

OK, jumping in as a 1099 employee myself.

Now, as a graphic artist, I work in nice clean offices sitting at a desk. I come and go as I please, so definitely a sub contractor. I don't work with ladders or power tools.

Blue in my situation, according to them, yes you

I think I found out where I messed up with this. I think my paying John Doe instead of Doe Masonary and Concrete or John Doe Electrical was the difference.

PE, Thanks for sharing with us. It is important lesson for all of us.

So we will not write check to any personal name.

Do you think independent contractor agreement makes difference?

CJ, I'm not sure at this point. It varies state to state.

It appears to be as simple as paying them as a company name vs individual. I have plenty of individuals that were paid as company names that the WC audit would have picked up, but no mention was made of them.

I am easy when contractors tell me to let them put the name on my check. Even they have business, they want to have the check in their name some times. I will have to be strict on put their business name on my check from now on.

The irony is... if you didn't have employees and consequently paying worker's comp then you wouldn't be in this situation.

Jon S, luckily this is my flip llc, not my rental llc.

Brad, Retro : Rosanna Rosannadana!!! Thanks for bringing her up!