Workers’ Compensation for Construction Contractors

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Construction contractors need many types of insurance.

And one of the most important policies is workers’ compensation insurance. 

For builders like you, workers’ compensation coverage protects what’s most important in your business: your employees. 

In a high-risk environment like construction, workers’ comp ensures medical treatment for a work-related injury is covered and helps them return to the job safely. And it protects your business from paying out of pocket for these expenses. 

Workers’ compensation coverage can be complicated. Rates are often expensive and vary based on class codes and state regulations. And knowing who should be covered by this insurance policy isn’t always straightforward. 

Many contractors have questions like, “Are subcontractors supposed to be covered by workers’ comp?” 

Or maybe you’re wondering if you even need workers’ comp. 

So, we’ll cover what workers’ compensation for the construction industry is, how it works, and answer a few common questions for builders. 

What is Workers’ Compensation Insurance? 

Let’s start with the basics. 

Workers’ compensation insurance, or workers’ comp, is an insurance policy that covers your business and employees if they’re injured on the job. 

When a claim is filed and approved, workers’ comp coverage pays to cover medical expenses for treatment of work-related injuries and lost wages due to time away from work. 

For example, if one of your roofing workers falls and breaks their collarbone, your workers’ compensation policy will pay their medical bills and wages if they’re out of work during recovery. 

Workers’ compensation insurance is often referred to as workers’ comp. They mean the same thing, but workers’ comp is a shortened version commonly used in conversation.

Workers’ Compensation Laws & Requirements

Here’s where things can get a bit tricky. 

Every state has different requirements for workers’ comp insurance. All states, except Texas, require employers to have a workers’ compensation policy. However, there are various stipulations and regulations about who should be covered. 

Most states have an employee or payroll requirement to determine if a business needs workers’ compensation. 

For example, if a handyperson is a sole proprietor working on homes, they likely don’t need workers’ compensation coverage because they are self-employed and are the only employee. 

This is the case in New York, which allows one- or two-person corporations, with no one else involved in the business (including subcontractors), to be exempt from workers’ compensation coverage.

But state laws will almost certainly require a construction company with fifty employees to have workers’ compensation insurance.

It’s also not uncommon for clients, or projects available for bid, to require proof of workers’ compensation insurance or a certificate of insurance.

You should work with a broker specializing in your state’s workers’ compensation laws to ensure you follow all regulations and requirements. 

Why Workers Compensation Insurance is Critical Coverage

Workers’ compensation is often one of your most expensive insurance policies. But, it’s an important tool for protecting your business and employees.

And there is a reason comp policies are so expensive. Medical costs are very high, meaning workplace injuries will create significant bills.

According to the National Safety Council, the average cost for a workplace claim from 2018-2019 was $42,008. And if the work-related injury involved a motorized vehicle, the cost nearly doubles.

Workers’ compensation coverage pays for those expensive bills. And it also gives your employees a sense of security. When you have a comp policy that protects them when they’re hurt, they’ll know you have their best interest in mind, and receive a paycheck, even when they’re out. 

The Cost of Workers’ Compensation Coverage

Several factors determine premium costs for workers’ compensation insurance.

The level of risk is one determining factor an insurance company will use to set rates. And costs vary based on job classification. So, for example, someone working in your office will have a much lower workers’ compensation cost than a general laborer working on a job site.

In a high-hazard industry like construction, you’re likely to have many employees who carry a high insurance cost. 

Workers’ compensation insurance companies also look at what’s known as an Experience Modification Rate (or Ex Mod). Your Ex Mod rating is based on past losses, workplace incidents, and future probability of injuries. The higher your Ex Mod, the more your workers’ compensation insurance will cost. 

And one bad year of losses can impact your premium for years to come. This is because rates are traditionally locked in for at least three years before they can change. 

Working with an experienced broker who can find the best rates for your insurance coverage is essential. Having the right insurance partner can save you thousands of dollars in costs and ensure you have adequate coverage to protect your business.

Do You Need Workers’ Compensation for 1099 Employees? 

If you’re like most contractors, you have subcontractors, or independent contractors, supporting you on job sites. 

As 1099 employees, they’re not on your payroll, so does that mean they don’t have to be covered by your workers’ compensation coverage? 

Well, it depends

Rules on subcontractors vary by state laws. But, in California, subcontractors are covered if you provide task direction and control. 

In other states, independent contractors don’t need to be covered if they’re not working on something directly related to your project (like HVAC or plumbing). 

Independent contractors will sometimes have their own workers’ compensation coverage. 

It’s a best practice to provide a complete list of salaried and subcontracted workers to your broker and work with them to determine who should receive insurance coverage.  

Foresight Covers Contractors Like You

Foresight understands the construction industry. 

In fact, high-hazard industries are our specialty.

We help contractors like you get workers’ compensation coverage while keeping your employees safer. 

Every policy is wrapped in our proprietary safety technology. You can access our app on a mobile device to log incidents and near misses or start the claims process. 

You can track which jobs or areas of your company need safety support to reduce incidents. And we provide safety resources (with translations) to help you every single day.  

And as your company becomes safer, your premiums can go down. 

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Author: Foresight

We’re a team of compliance, safety, and commercial insurance professionals transforming workers compensation. We write about technology, trends, regulations, and value-adding services.