By Hannah Sullivan, Pogo Insurance

One of the great debates among the contractor community is in regard to workers’ compensation insurance. Who’s responsible for providing it — the general contractor (GC) or the subcontractor?

In the United States, workers’ compensation coverage is mandatory for W-2 employees once a business has reached a certain size. This number of employees varies by state. As a subcontractor, when you are hired by a GC, you are not technically an “employee.” You work independently “with” the GC, not “for” the GC as a traditional employee. 

General contractors are not actually required to provide subcontractors workers’ comp insurance, and because of this, they typically prefer to require subcontractors to provide their own workers’ comp coverage.

Why are subcontractors expected to get their own workers’ comp?

General contractors require subcontractors to have their own policy to reduce their own liability. Your policy will pay out if an accident occurs, instead of theirs. Workplace incidents can happen at any time, especially when you’re working with dangerous equipment and tools. Common jobsite injuries include muscle strains, lacerations, or even ladder falls. And most general contractors don’t want to be on the hook, or pay for extra insurance coverage, if something happens. That’s why most require subs to provide a Certificate of Insurance before they start the job.

If a GC contracts with an uninsured subcontractor and they get hurt on the job, they could be found responsible, as they are the hiring party. Workers’ comp claims include medical bills, lawsuits, and lost wages. If you get injured while working and you do not have workers’ comp coverage, your GC will be responsible for paying for those claims. 

Additionally, GCs want the subs they hire to have their own insurance because workers’ comp premiums are based on payroll. If they hire you, and you don’t have insurance, they’ll be charged for hiring you when the workers’ comp carrier audits them at the end of the year. If a general contractor hires a subcontractor with their own policy, they won’t get charged for that payroll.

Can general contractors add subs to their own workers’ comp policy?

Although general contractors can technically add subs to their policy, it’s not as common.

In some cases, they’ll add subcontractors to their policy as an “additional insured.”

An additional insured is a person of entity who may be added to an existing party’s workers’ comp policy with respect to work performed on a specific job.

If you’re listed as an additional insured, you’ll get workers’ comp protection while you’re working for the general contractor. This includes medical bills, defense coverage, and third-party lawsuit coverage. Keep in mind, being listed as an additional insured for one party does not mean you have coverage while working for other parties.  

Why don’t more general contractors list subcontractors as additional insureds?

Simply put, it’s all about the money. The more payroll a general contractor has, the more expensive the workers’ comp policy. When a GC hires a sub that has their own insurance, they are not charged for that payroll, resulting in a more affordable workers’ comp policy for themselves.

Not only that, but if an accident happens, it can impact the general contractor’s loss history. If a claim occurs, it will raise their experience modifier. The higher the mod, the higher their insurance will cost.

Why do subcontractors need workers’ compensation?

It doesn’t matter if you’re working as a one-person operation or as a team. If you’re on a jobsite, you should have workers’ comp. This form of commercial insurance protects you in the event you get injured or fall ill due to work-related activity. Your workers’ comp policy will cover medical bills related to things like wounds, broken bones, asbestos poisoning, and more.

Additionally, if you or an employee require time off work to recover from an illness or injury, the lost wages will be supplemented by your policy. Many providers also offer back to work programs to help you and your employees return to work faster.

Medical bills and lost wages aren’t the only benefits of workers’ comp insurance. If you face a lawsuit regarding claims of negligence or an unsafe work environment, court costs, legal fees, and settlements are taken care of through your policy. 

Without workers’ comp, you would have to pay for any financial damages out of pocket. But a good policy will pay for the cost of claims.

Learn more about workers’ comp for subcontractors.

What are workers’ comp requirements?

Every policy is different because every subcontractor is different. The main question is: Do you have employees? 

If you are a subcontractor working on your own with zero employees, you may be eligible for a ghost policy. This is essentially the most affordable form of workers’ comp on the market, as you are only paying the minimum premium as dictated by the state. It does not provide workers’ comp coverage, however, it does still provide you with your Certificate of Insurance. It’s an affordable way to get hired, but it can be more of a risk because if something happens you will not have the financial protection from your policy.

If you do have employees, you will need a standard workers’ comp policy where you have the choice to include or exclude yourself from  coverage. Your employees are covered either way.

How much does subcontractor insurance cost?

There are several factors that dictate the price of your workers’ comp policy. Location is a big factor. Workers’ comp is a state-regulated coverage, which means each states’ rates are different. The greater the risk, the greater the rate. For example, a subcontractor that specializes in cabinetry has a much lower rate than someone involved with roofing. 

The number of employees also plays a role in determining the cost of your workers’ comp policy. This is largely due to the fact that premiums rely on payroll. The greater the payroll, the greater the cost of the policy. 

Your loss history is another factor that determines the cost of your workers’ comp. If you have had claims in the past, your premium tends to be higher than someone who has not experienced losses. As an example, if you are a sole proprietor with no employees and purchase a ghost policy, in many states you will find rates as low as $750 annually. 

Check out this subcontractor insurance cost guide to learn more on how much subcontractors might pay for workers’ comp insurance.

Where should subs purchase workers’ compensation insurance?

There are a variety of ways to find workers’ comp. You may contact an insurance agent, a broker, or insurance carrier. In some cases, you may be able to purchase workers’ comp from the state directly.

About the Author

Hannah Sullivan is VP of business development for Pogo Insurance, a company that provides cost and coverage comparisons from dozens of top insurance providers by analyzing workers’ comp rates. Learn more about subcontractor insurance and get free estimates from multiple carriers.