General Contractors, Independent Contractor and Employees
As a general contractor you can save money by hiring Independent Contractors instead of an employee however you open yourself up to a risk.
General contractors, independent contractors and employees in the construction industry work in a high risk trade. Insurance coverage is mandatory in most states including Liability and Workers Compensation. Most general contractors utilize independent or sub-contractors instead of hiring full-time employees. What’s the difference? An employee is entitled to coverage from the General Contractors Insurance policy, where an independent/sub-contractor is not. Independent contractors cost less than employees and are not protected by the federal anti-discrimination laws, the federal wage and hour law, or the Employee Retirement Income Security Act. Although short term savings come from using independent contractors, recent changes in state and federal laws have made misclassifying an employee as an independent contractor bring severe penalties including liability for damages, accidents or injuries, fines from the IRS, and rulings in court that redefine some independent contractors as an employee.
Some Classifications to Define an Independent Contractor
- The employer does not have control and direction of the independent contractor who is performing the service. The independent contractor offers the service and completes the job in the way he sees best.
- The worker must be providing a service that is outside of the General Contractors usual course of business. Examples could be a plumber or electrician who is helping the General Contractor in construction of a new home.
- The worker must be performing an independent trade, occupation or profession for other companies not just yours.
Our Suggestion to General Contractors
General Contractors can save money in the short run on Workers Compensation Insurance yet they expose their business to legal damages as an independent contractor who is not covered by Workers Comp is entitled to sue the company in court without a limit on damages that they can claim. Buy a workers’ compensation policy – even if you think you don’t have any employees. Make certain the independent contractors you do hire have their own workers’ compensation insurance. To protect your business any independent or sub-contractors should be required to provide a certificate of insurance. Be sure that you have the original certificate not a copy and check that the insurance coverage is current and each year that it is renewed. Without contractor insurance you could be held liable for damages to property, injuries and accidents of your sub/independent contractors.
* The above terms and opinions are to be used for descriptive and reference purposes only. Please review your individual policy for full definitions, exclusions and endorsements. Should you have any questions, please contact your Broker or Agent.