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Hiring Subcontractors

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What you are required to do when you hire a subcontractor 

 

Reprinted by permission of SFM 

 

Hiring an uninsured subcontractor poses a significant liability to your organization. This liability can affect your workers compensation premium substantially. This notice explains what you must do to avoid unexpected additions to your premium.

 

Minnesota law (Minn. Stat. §176.215) states: When a subcontractor fails to obtain workers compensation coverage, the general contractor or any intermediate contractor is liable for payment of all workers compensation benefits due an injured employee of the uninsured subcontractor, so long as the injury occurs on a job that is within the scope of the contract.

 

When the subcontractor uses employees
If your subcontractor uses any employees on the job you have hired the sub to do, then the subcontractor is required by law to carry workers compensation insurance. Before work begins, it is absolutely necessary for you to get a Certificate of Workers Compensation Insurance from the subcontractor showing coverage in force at the time of the subcontracted work

 

You may need to make this certificate available to your workers compensation insurance company auditor during your regular annual audit. If the auditor is not able to verify that the subcontractor had a workers compensation policy in force, then the payroll of the subcontractor may be included in the payroll base for calculating your workers compensation premium. If you do not have the payroll information for the subcontracted work, in most circumstances, the subcontract price of the work performed during the policy period may be used as payroll (Minnesota Basic Workers Compensation Manual Rule 2.H.2). Including this may increase your premium substantially.

 

When the subcontractor works alone
If your subcontractor has no employees and therefore is doing the job by himself, then he may or may not be carrying workers compensation insurance.

 

If he does have workers compensation insurance: You need to get from him a certificate showing workers compensation coverage in force at the time of the subcontracted work. 

 

If he does not have workers compensation insurance, then you need to have him do these three things:

  1. Provide you with a valid copy of the Independent Contractor Registration issued to him by the Minnesota Department of Labor and Industry.
  2. Fill out and return to you any documentation required by your workers compensation insurance carrier to help in determining whether the subcontractor meets the legal criteria for “independent contractor” for purposes of workers compensation.
  3.  Provide you with a Certificate of Insurance for General Liability covering the dates the work was performed and with adequate liability limits.

 

Always require your subcontractor to provide you with the necessary certificates.

 

Note
North Dakota statutes that address issues of hiring subcontractors and workers compensation are similar but not exactly the same as the Minnesota statutes. North Dakota statutes require the general contractor to pay the workers comp premiums if the subcontractor has not done so. It is important to review your state statutes to see how they address the issues with hiring subcontractors.

 

Disclaimer
This advice is for general information purposes only, may not apply to you and is not intended to be legal advice. This post does not constitute an endorsement by Insure Forward. Every insurance situation is different. Please consult an Insure Forward representative regarding your individual situation.

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