Contractor News

Contractor News

Independent Contractors and Workers' Compensation

Payments You Make to Independent Contractors May Increase Your Insurance Costs

In Nebraska and Iowa, sole proprietors are excluded from the workers’ compensation law, unless they make an election to be covered.  Many of these sole proprietors operate as independent contractors and accept subcontracted work from other contractors.  If the sole proprietor does not have any employees, there is no legal requirement for them to purchase workers’ compensation insurance.

In recent months, we have seen several insurance carriers pick up the cost of these sole proprietor subcontracts and charge a premium when conducting the workers’ compensation audit for their contractor clients.  In researching this issue, there is significant case law where a sole proprietor subcontractor was injured on a contractor’s job and filed a claim under the contractor’s workers’ compensation policy.  Even though the sole proprietor was not required to carry workers’ compensation insurance, under Nebraska and Iowa law, they are considered a “statutory” employee of the contractor and eligible for benefits from the contractor’s policy.

So, the contractor’s insurance company gets to pay the claim without having had the opportunity to charge a premium for the exposure.  Accordingly, some of the insurance carriers are now picking up this exposure when the conduct the premium audit of the contractor’s policy.

In order to avoid  surprises at audit time. If you hire independent or sub-contractors, we strongly encourage you to:

  • Use a standard subcontract agreement with all subcontractors, even those who are sole proprietors.
  • In the subcontract agreement, require  the subcontractor to procure and maintain workers’ compensation insurance for the duration of the project.
  • Require the subcontractor to provide evidence of workers’ compensation coverage via a Certificate of Insurance prior to starting any work.

We have raised this issue with the Nebraska Director of Insurance, and he has advised that unless and until the workers’ compensation law in Nebraska is changed, there is no other way to avoid this problem.

We would recommend you contact your State Senator about this issue.  Hopefully, if enough people do so, the Legislature might look into make the necessary change in the Nebraska workers’ compensation law.

Please contact your INSPRO representative if you should have any questions.