As experienced Brokers with a specialty in tough Workers' Compensation, we often get questions about Audits and Sub-contractors including Casual Labor.   Today, one of those questions came from a beloved Non-Profit client that is preparing for their annual Workers' Comp audit.   The Auditor asked for the following:

 

"List of all subcontractors, contract and casual labor with amount paid to each for (the expiring policy period), method of payment, job performed and copies of certificates of insurance".  Our client asked in turn: "Do you know what certificates she is requesting for insurance on our contractors?"

 

First some Terminology: 

 

Contractors and Sub-contractors - Under Workers' Compensation law, an injured employee has a right to expect that his employer is providing benefits under Workers' Comp in accordance with State Laws.  Unfortunately, not all employers obey the law despite facing stiff fines and penalties. This is a big problem in Contracting where sub-contractors are commonly used to provide anything from special skills to surplus general labor. 

 

Uninsured Subcontractors - In order to protect subcontracted employees, Work Comp Judges and Courts have held that the General Contractor or even the property owner can be considered the "ultimate employer" and made their Workers' Comp policy responsible for an injured 'subs' medical bills and lost wages.  This is a reasonable protection for an employee who shouldn't need to worry whether his employer might have missed a premium payment or similar problem, but it also imposes a burden on Employers. 

 

Casual Labor - frankly, the term casual labor is generally a term that implies that the subject individual really was an employee, but that from a pragmatic standpoint the employer didn't go to the effort of documenting their employment properly. This may be a simple matter of a neighborhood kid cutting the grass for a few dollars - - - In the extreme, there are some industries like Roofing or Tree Removal where it is all-too-common for 'a friend' or 'a helper' or 'a buddy' to be engaged as if they were employees, but without being given the WC benefits of an employee.   This is a dangerous area and a business with integrity will guard against those circumstances.  

 

No need for Workers' Comp? - Other circumstances fall between these extremes; often they involve legitimate businesses that are allowed to exempt themselves from Workers' Compensation.  For instance, in most States, a Sole Proprietor with no other employees doesn't need to carry Workers' Comp; likewise, in some States Partners in a Partnership may be either exempt or excluded.  There are also Religious Exemptions available in PA and some other States for Amish workers with proper documentation. 

 

The Auditor's Role - the Auditor works either directly for the Insurance Company or for an independent auditing firm (e.g. Subcontractor).    Their role is to audit the records of policyholders in order to determine what the exposure and cost is for the (expiring) policy.   They have a legitimate right to charge for Contracted and Subcontracted labor, but only to the extent that they are not insured through another policy. 

 

Here are some General Guidelines for Audits:

 

Regular Contractors - always request and keep on file Certificates of Insurance from anyone doing regular contracted work (landscaping, snow plowing, janitorial).  Good Risk Management suggests that Business Owners and especially General Contractors have a need to secure and maintain Certificates of Insurance from all subcontractors.  Certificates should include Workers' Comp, General Liability, and Auto Liability and a thorough explanation if those are missing.  Understanding the State Law is critical to a carefree Audit.   CALL OR WRITE US for advice on any unclear Certificates.

 

Casual Labor and Uninsured Contractors - be prepared to report to an Auditor any unsupported payroll costs.   Be honest and up-front and provide a list of these payments as if they were a part of your payroll.  In PA the Auditor will include these in your main Work Comp classification; some other States may allow an Auditor to assign a class based on the type of work.   Special rules apply for Trucking.  

 

You can count on us - We have four Certified Workers' Comp Advisors on staff to help you untangle these complex rules.   Audits can be disputed and Classification issues can be challenged.   We have dozens of success stories where we've saved thousands of dollars for our clients.