Properly Deducting From Uninsured Subs

* Recoup cost of doing business with uninsured sub by deducting

* Labor vs. Material rules

* Best for invoice to break out labor

* If invoice does not break out labor, rules of thumb:

– 50% rule

– 33% rule for heavy machinery

* Agent should provide withholding sheet with percentages for each class code

You must know how to “properly” deduct from uninsured subs. As compared to Work Comp, the General Liability charges per $100 of payroll are much smaller. For this reason, some builders choose to not deduct for General Liability. However, you can save some premium dollars by doing so and this provides incentive for your sub to get his own coverage. If the invoice from the sub breaks out labor vs materials, you should only be charged for the labor portion. On the other hand, if the invoice does not have a break out, the auditor has wide discretion to estimate the labor charge. Most auditors will generally assume that 50% or more of the charge is labor. When the sub provides heavy equipment, most auditors will assume that only 33% of the charge is for labor. Your insurance agent should provide a withholding sheet that indicates what rate to charge for each classification code of uninsured sub.