“In Massachusetts , an undocumented worker or uninsured sub-contractor injured while working for an employer without workers’ compensation insurance can file a claim for benefits with the state Workers’ Compensation Trust Fund. The trust fund has a duty to defend the claim or to pay the appropriate benefits under the law. It also has the authority to join the allegedly uninsured employer to the proceedings. The trust fund can also sue the employer for any benefits it pays to the worker. Funding for the trust fund comes from annual assessments levied by the Department of Industrial Accidents on all employers insured for workers compensation in the Commonwealth. In fiscal year 2005, the amount paid out for uninsured injuries was $6,052,205 on 201 such claims.” The above paragraph was taken from the Standard which is an insurance industry publication in their May 18, 2007. The article highlights the problems that employers are facing in today’s workers compensation market.

It has become a reality that employers who hire sub-contractors must take extreme care that 1) the worker must be free from the presumed employer’s control and direction, 2) the service provided by the worker must be outside the employer’s usual course of business, 3) the workers must be independently employed in the trade or occupation being provided to the employer. Otherwise, the employer is at risk of having that sub-contractor considered as an “employee” by their own workers compensation carrier even if that sub-contractor provides them with a certificate of insurance. The problem arises that those unincorporated sub-contractors are normally exempt from coverage on their own policies and certificates of insurance indicate that. Since they are not covered, they would be considered as employees of the General Contractor. In order to provide coverage for themselves, the result could be a very large amount of premium that most small contractors cannot easily afford. The change in the independent contractor law shifted not only the presumption that the worker was not an employee, but also who carries the burden of proof, now it is the supposed employer that must prove that no employment relationship existed.

Important Changes in Workers Compensation Regulation

The workings of Workers’ Compensation policies have recently been adversely affected by a change in the State of Massachusetts General laws. This new change drastically affects how a General Contractor should consider his employees and sub-contractors.

Until recently, sub-contractors who had their own Commercial General Liability and Workers’ Compensation policies were considered to be within the laws so that when the General Contractor faced an audit for his own Workers’ Compensation policy, those sub- contractors would not be included in the calculations as long as a certificate of insurance was provided showing active policies for the period of time work was performed..

Things have changed. The new rulings do not allow General Contractors to treat a sub- contractor who does the same type of work as an independent operator, but rather as an employee. This means that the General Contractor is now obligated to:

1) Withhold taxes, both State and Federal.
2) Withhold for FICA and match that amount.
3) Have the sub-contractor covered as any other employee under his own Workers’ Compensation policy.

Example, you own a carpentry framing operation and you have 3 men working with you as regular employees. On occasion, you hire a sub-contractor to help out if you should have a large home to construct. Since you perform a framing operation and you hired another framer to help you, he is now considered to be your employee, should be paid under a W2 and not a 1099, and have all of the benefits that you regular employees have.

There are many more examples of this happening every day. At this time, the companies are just starting to apply the new rules when conducting an audit and some insured’s are finding that their audit results are calling for much higher premiums than they expected.

Another change is that as of November of 2004, sole proprietors and partners of a business are now allowed to “Opt In” for coverage under their own Workers’ Compensation Policy. This allows them to be covered for benefits just as their employees are covered.

I would expect that soon, any contractor who has no employees will be obligated to Opt In for coverage so that his certificate of insurance will be acceptable to his General Contractor, otherwise the company feels that should that sub-contractor get injured on the job, the Workers’ Compensation policy will most likely have to provide the coverage.