What Kind of Contractor Insurance Will Cover Your Subs and Employees?

More hands on deck means you can get more work done faster. But it also means more liability on a project, too. When you’ve got people helping you get the job done, you want to be sure you’ve got the right contractor insurance policies in place to protect your employees, subs, and your business interests.

Take a look at the ways employees and subcontractors can impact your contractor insurance policies and coverage.

Contractor Insurance for Employees: Workers’ Comp

Got employees? Then you need workers’ comp. In most states, carrying workers’ comp isn’t just recommended - it’s required by law. Workers’ compensation insurance provides coverage in the event your employees become ill or injured while doing their job. The coverage can provide for medical payments and lost wages if someone falls off a ladder, gets tangled up with a sharp tool, or gets otherwise injured on a project site. It can even cover the costs of an illness caused by an employee disturbing asbestos-containing materials.

Workers’ comp ensures that your employees can get the medical care they need if they are injured on the job. And if they need time away from work to recover and rehabilitate, it ensures they aren’t left without any wages during the interim. The construction industry is one of the most dangerous, and workers’ comp provides a safety net of protection for the people who work hard for you day after day.

Warning: Don’t Misclassify Subcontractors

When you hire subcontractors, you aren’t required to provide workers’ comp coverage for them. But don’t make the mistake of attempting to misclassify an actual employee as a subcontractor in an attempt to avoid carrying the right insurance. If you’re misclassifying an employee as a subcontractor there could be major fines and penalties to pay.

Misclassification can occur from a simple mistake, it’s not always malice. If you’re not sure if you are paying a subcontractor or an employee, here are two questions to help steer you in the right direction:

  • Do you pay a subcontractor to perform the same duties that your employees perform?
  • Was your subcontractor previously your employee who performed essentially the same task?

If you answered yes to either, your sub may actually be a misclassified employee who you need to cover with workers’ comp insurance.

If you work with employees, you have to consider workers’ comp. But if you work with subcontractors, you have another contractor insurance situation to consider...

Does Your General Liability Insurance Cover Your Subs? (The answer may surprise you.)

When you work with subcontractors, you may assume that your contractor liability insurance covers their activities on a project site. This assumption is often wrong, and could be costly. Your general liability policy may specifically exclude damages caused by parties other than you or your employees.

Let’s say you completed work on a remodel project, and later found out that the house caught fire because of the electrical work performed by your subcontractor. Your liability insurance may not cover the damage resulting from the work done by the electrical contractor.

Protect your business by making sure your subcontractors are insured. Your subcontractor should have their own general liability coverage, and provide you with a certificate of insurance to prove coverage.

Here are some best practices when it comes to your subcontractors’ insurance requirements from the International Risk Management Institute (IRMI):

  • All trade contractors/ subcontractors should provide certificates of insurance before beginning any work.
  • All trade and subcontractors should maintain the same levels of coverage in the same amounts.

And Lastly, Ask for Additional Insured

One last industry best practice is to make sure your subcontractors include you as an additional insured on their insurance policies before beginning work. When a subcontractor adds you to their insurance as an additional insured, or named insured, they are protecting you against their own negligence. In other words, your general liability policy is protecting you against your own negligence, while your subcontractor’s insurance is protecting you against theirs.

The right insurance coverage can help you protect your business, your employees, and protect you from work done by subcontractors. Before you start your next project, make sure everyone is adequately covered.