Uninsured Subcontractors Increase Your Workers Compensation Insurance

Apr 3, 2017 11:42:30 AM

Massachusetts generally requires employers who have employees to carry workers compensation insurance, but subcontractors fall into a gray area. Sometimes businesses need to provide workers comp insurance coverage for subcontractors, and other times they don’t. If a business has to provide coverage, its policies premiums typically increase -- and sometimes they increase unexpectedly. The easiest way to reduce the likelihood that hiring subcontractors increases your West Springfield, MA business’ workers comp insurance premiums is to only hire subcontractors who have their own insurance coverage.

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Hiring Uninsured Subcontractors Could Increase Your Business’ Workers Compensation Insurance Rates

Workers Compensation Insurance Premiums Are Estimated and Then Confirmed

When providing quotes for workers compensation insurance policies, insurers usually provide estimates. Based on the information they’re given by an inquiring employer, they calculate what workers comp insurance coverage would cost that business. The estimate that’s provided is normally paid when the policy is purchased.

The estimate is then checked during a routine audit that takes place at the end of the year. During this audit, the insurer typically reviews a company’s books and calculates exactly what a business ought to have paid for the policy. Any difference is made up, either refunding any extra that was paid or charging a business for any shortfall.

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Hiring Uninsured  Subcontractors Could Increase Premiums

Because subcontractors sometimes have to be covered by a business’ workers comp insurance, hiring subcontractors can increase the premiums that a business must pay. 

The increase may not be initially picked up, especially if a business doesn’t include these subcontractors when getting a quote or hires them after obtaining coverage. Any subcontractors who should have been included, however, will be added during the end-of-policy audit. When they are, the insurer will make any necessary adjustments -- which may include increasing the policy’s premiums.

Such increases can catch a business off guard and significantly strain its financial resources, as the increases are often unexpected.

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Hiring Insured Subcontractors Can Help Avoid Increases

One easy way to prevent such increases is to only hire insured subcontractors.

There are many factors that can affect whether a subcontractor is responsible for providing their own insurance coverage or if a business must include them on its workers compensation policy. 

In general, however, subcontractors that already have their own workers compensation coverage don’t have to be covered by a business’ policy. Thus, if your West Springfield, MA business only works with subcontractors that already have workers compensation coverage, they likely won’t be added to your business’ coverage during an end-of-policy audit -- and your business’ premiums probably won’t go up on account of the subcontractors.

Talk to a Business Specialist!Work with Your West Springfield, MA Insurance Agent

The above are general guidelines, but each situation is unique and has specific considerations that should be taken into account. For help determining exactly whether or not hiring a particular subcontractor will increase your West Springfield, MA business' workers compensation insurance premiums, contact your business' independent insurance agent. They'll be able to review your business' particular workers compensation policy and the circumstances surrounding the subcontractors work, in order to determine whether and how hiring the subcontractor will affect your business' premiums. Just be sure to contact your business' agent before hiring a subcontractor, because any impact on premiums will being on the first day they begin working for your company.

Edward J. Adamczyk

Written by Edward J. Adamczyk

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