Posted on April 6, 2018 by Jorie Helms

Provided by: Gene Spencer, Director of Underwriting, CompSource Mutual Insurance Company

Contractors often ask, “How do I

protect myself from being held liable for

a subcontractor’s workers’ compensation claim or getting hit with premium during the premium audit?” The short answer is, understand what constitutes an employer/employee relationship, work with subcontractors you trust and make sure they have workers’ compensation insurance.

You become liable for workers’ compensation premiums and potential claims when the contractor/subcontractor relationship is, in fact, an employer/employee relationship. To determine if this relationship exists, use the IRS guidelines for actions that establish an employer/employee relationship. The IRS recommends evaluating the entire relationship and consider the degree and extent of control and independence the subcontractor has, and document each factor

Editor’s Note: OSHBA has an affinity arrangement with CompSource.

used in making the determination. The premium auditor will look at these and others specific to workers’ compensation to determine if premium should be collected for the assumed risk during the policy period.

Keep in mind, you could still be liable for a workplace accident, even if an employee/employer relationship does not exist. This occurs when a subcontractor does not have a valid workers’ compensation insurance policy, and one of their employees is injured on your job site. If a valid insurance policy is not in place, the liability rolls up to the contractor. Therefore, it is imperative you always get a Certificate of Insurance before work begins and, when possible, work with contractors you know and trust. Working with a trusted subcontractor reduces your likelihood of having to assume a direct supervisory role with the subcontractor or their employees that could cast you in the role of the subcontractor’s employer. Additionally, a reliable partner with an established track record is more likely to maintain appropriate workers’ compensation coverage for their employees.

Sometimes, it is necessary to work with new vendors; contractors can still take measures to protect their business, such as:

• Be familiar with what creates an employer/employee relationship

• Know what an authentic Certificate of Insurance looks like

• Know who qualifies to use a Certificate of Non-Coverage

• Get a Certificate of Insurance or Certificate of Non-Coverage well in advance of work being started and set reminders to request updated certificates before they expire

By using these tips when you hire a subcontractor, you can help protect your business. For more information on this or other workers’ compensation insurance questions, visit our website at or call one our underwriting, claims or loss prevention experts at (405) 232-7663. 

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