What is Contractor Workers’ Comp?

Also, referred to as Workmans’ Comp, Workers’ Compensation, or simply Work Comp,

this is the type of insurance coverage that every employer dreads buying. Contractor Workers’ Comp is regulated by the state in which you conduct business and is there to protect your employees. The requirements will vary state by state but the policies typically provide the same basic coverages.

What does it Cover?

This coverage is intended to pay medical expenses resulting from a work-related injury or work-related disease or illness. It will also compensate for lost wages if the employee qualifies. The benefits employees receive are based on the severity and type of the injury or illness:

• Medical Benefits – pays for medical care to treat a work-related injury.
• Income Benefits – pays a portion of the employee’s lost wages.
• Death Benefit – pays lost wages to the family of an employee killed on the job.
• Burial Benefit – pays a portion of funeral expenses.

As with any injury related insurance, there is a considerable amount of fraud committed and the insurance companies will investigate suspicious claims diligently. Insurance carriers that insure very large corporations will have experienced claims specialists monitoring every claim filed. The types of claims that will absolutely be denied include:

• Self-inflicted or intentional injuries
• Drug or alcohol related
• Claims resulting from off-duty voluntary recreational or social events
• “Acts of God” like flood or hurricane unless the job has a normal risk of such injuries

Do I Qualify?

Since some business classes find it difficult to obtain workers’ compensation, such as a roofing company, most states have an “Assigned Risk or High Risk Pool” that will underwrite businesses unable to find coverage in the private market. Many states have set a “trigger” that makes workers’ compensation insurance mandatory for the business. Usually the “trigger” is the amount of employees (full time and part time) that are employed byt the company.

How much is it?

Rates will depend on the type of work you are performing. Electricians and Automatic Sprinkler Installers tend to be on the lower end of the spectrum while Roofers and Solar Contractors end up on the higher end of the rate scale.

There are three main factors that go into setting Contractor Workers’ Comp premiums:

• The size of an employer’s payroll
• Each employee’s job classification
• The company’s claims experience

The premium rate is expressed as dollars and cents per every $100 in payroll for each employee’s class code for the operations that each is performing.

A basic formula for calculating Contractor Workers’ Comp premiums is below:

Employee Payroll (per $100 paid) x Classification Rate x Experience Modifier = Policy Premium

What are my Options?

Because of the access that Fairbanks Insurance Brokers has too many of the top-rated and most competitive markets, we are able to provide options for you:

• Annual Reporting Policy– Simply put, this policy is rated based on the annual salary you pay to your employees on a yearly basis and is considered the easiest way to purchase affordable coverage. At the end of the policy term, you will be required to provide proof of the company’s payroll which is usually extracted from the income tax return. This policy is beneficial only if you are completely sure of your annual payroll.
• Annual Policy with Monthly Reporting– By reporting your payroll on a monthly basis, your company will be paying a more accurate premium to the insurance company and less likely to have to cough up additional premium as the result of an annual audit. We will always offer this type of policy to those companies that qualify.
• PEO– In California, a Professional Employers Organization (PEO) is a very good option for obtaining affordable Workers’ Compensation Insurance. Although the PEO will require you to allow them to process your payroll, the cost of processing is most often offset by the savings on your Workers’ Compensation policy. Outsourcing your payroll also allows you to do what you do best, which is to earn revenue for your company.
• Owner’s Policy– If you’re a Contractor with very little or NO payroll whatsoever, and still required to carry Contractor Workers’ Comp, this program is for you. This option requires a simple deposit as a down payment, and you’re up and running. This program is also popular with Contractors who subcontract a majority of their labor. Some prefer to estimate the payroll at the beginning of the policy period and others prefer to pay it following the post audit inspection. Either way, it’s a good program for Contractors who like to keep it simple but are still required to carry a Workers’ Comp policy.

What if I get caught Without it?

It is no laughing matter-

California law is very strict when it comes to protection for employees against work-related injuries or illnesses. The law requires employers to carry Workers’ Compensation insurance even if they have only one employee. If you are in the roofing business and have no employees, you must still carry workers’ comp. That’s the law, and if you are caught breaking it, there are consequences:

• Failure to Post– Employers are required to post a “notice to employees” poster in a conspicuous place at the worksite. Failure to do so is considered a misdemeanor and can result in a penalty of up to $7,000.
• Illegally Uninsured – If an employer is found to be illegally uninsured, it is considered to be a misdemeanor offense punishable by a fine of not less than $10,000 or up to a year in the county jail, or both. The state may also issue a penalty of up to $100,000.
• Illegally Uninsured and Employee Injured – If your business is uninsured and an employee suffers a work-related injury, your business becomes responsible for paying all medical bills of the injured employee and the employee can file a civil suit against you.

But wait, there’s more! If your business decides to risk not having contractor workers’ comp as required by the California State Labor Commission, and you continue operating your business while remaining uninsured, there’s a lot more that can happen to you:

• Stop Order – If your business is found to be violating state labor commission laws, a stop order will be issued against you and your company. Once a stop order is issued, your business cannot operate with employees until you obtain adequate coverage, and you are still subject to the appropriate fines and penalties.
• No Coverage and Claim Filed – If an employee is injured on the job and files a claim for coverage, but your company is uninsured, it can really get expensive. If a judge determines that your company was uninsured, your company may be assessed a fine of $10,000 per employee that was on your payroll at the time of the claim, up to $100,000.

Additional Premium Audit

If you, as a sub-contractor, are working for a General Contractor and are unable to provide sufficient proof of state mandated workers’ compensation coverage, your General Contractor will be required to pay an additional premium to their insurance company and will most likely deduct the additional premium from any compensation due your company. Or, if your company has already received payment, the General Contractor is likely to file a civil suit against your company to recoup the additional premium they were forced to pay on your behalf.

Yes, workers’ compensation is a pain, and yes, depending on your business classification, it can be very expensive, but the penalties for not obeying the labor laws in California are designed to put you out of business.

How do I Pay?

Fairbanks Insurance Brokers has a variety of different payment options to choose from when purchasing your Workers’ Compensation policy.

1. Full Payment Option– Pay the policy premium in full with one lump sum. This option is highly recommended to avoid missing a monthly payment or having to pay late fees or cancellation.
2. Direct Bill Option – The carrier will send you a monthly statement until the policy is paid in full. This option normally requires a small down payment while the balance is divided up over an 8-10 month billing period.
3. Pay as You Go – This option requiresa low down payment, and you will be required to report the payroll and issue payment to the carrier on a month by month basis. This option is popular for Contractors whose payroll varies significantly from project to project.

Why run with Fairbanks Insurance Brokers?

By retaining excellent relationships with the most competitive insurance carriers, Fairbanks Insurance Brokers can consistently offer competitive insurance products for the contractors we represent. When you allow our dedicated team to service your insurance needs, you are rewarded with more time to concentrate on what you do best!