Requirements To Carry Workers’ Compensation

It’s important to understand the requirements for builders or subs to carry Workers’ Compensation under state law, which varies slightly from state to state. In South Carolina for example, which has laws that are representative for most states, all businesses that regularly have less than 4 employees are exempt from carrying Work Comp. The less than 4 count includes corporate officers but not sole proprietors, partners, or LLC members.

However, when a builder uses subs, you by definition becomes the statutory employer and have liability for any injuries to employees of your subs, just the same as if you were the employer. As a result, builders who use subs are always required to carry a Workers’ Compensation policy even if you have fewer than 4 employees.

A lot of builders think that they don’t have to carry a Work Comp policy if they collect certificates of insurance from all of their subs. This is not necessarily true. A builder can still end up being responsible for the claim if the sub’s Workers’ Compensation policy cancels for non payment of premium or if the certificate is not legitimate.

If you’re required to carry Workers’ Compensation but fail to do so and if your employee or the employee of your uninsured sub is injured, you’re in a lot of trouble. Their attorney will approach the Workers’ Compensation commission and will file a claim with the Uninsured Employers Fund and all the normal benefits will be paid. However, the Uninsured Employers Fund will then file a lien against you in the amount of the benefits that they paid plus other penalties. This lien can easily result in bankruptcy for your business.

From the point of view of your subs, they may truly not be required to carry Workers’ Compensation under the less than 4 employee count. However, you as the general contractor will become the statutory employer of their employees and your Workers’ Compensation policy will pay benefits in the event they’re injured. Because your policy will pay benefits, your insurance carrier will make a charge for these uninsured subs based on the amount that you pay them. Because you will be charged by your insurance carrier, you have a legal right to deduct the amount of the charge from what you would otherwise pay the uninsured sub. Therefore, don’t let the sub tell you that you don’t have a right to deduct just because they’re not required to carry their own Workers’ Compensation policy.