Non Employee Labor WC & GL Presented by: Becky Garry, CPCU, APA, ARM, AU Overland Solutions, Inc. Subcontractors/Contract Laborers/Independent Contractors General Liability & Workers Compensation Who What When How Why The Challenge How do you tell the difference between Subcontractors, and Contract laborers? How do you handle Subcontractors, Contract laborers and labor services for Work Comp audits? Is it different for General Liability audits?
Sub Contractor Defined A business that the insured has hired to do work for them. This is a bona fide business. They have a business name, they carry business insurance. They work for other companies, not just the insured. They hire and fire their own employees. They supervise their own employees. Independent Contractor Independent Contractors are subcontractors. For insurance purposes, Independent contractors have no employees (-0-Employees) Because they have no employees, in many states they are not required to carry workers compensation insurance. For General Liability Independent Contractors are handled the same as all subcontractors. What is a Contract Laborer They are individuals hired with skills and a tool belt to help but they do not have their own business and do not carry insurance. Insured can hire and fire the individuals. Insured controls and directs the work performed by Contract Laborers
What are Labor services Temp services Account Temps Labor Ready Labor Force Leased employees Insured controls and directs the work performed by temp laborers, labor service employees and leased employees. WC - Subcontractors For Workers Comp, you need to check the rules in the state you are auditing. State laws vary. TX for instance does not make the hiring contractor responsible for WC on uninsured subcontractors. Most states however, make the General Contractor responsible for WC injuries for a sub if the sub is not insured. WC Non employee labor 1. Talk about the subs in your description of operations. 2. How many subs, what do they do, are they insured, are there any uninsured subs? 3. What other types of non employee labor is used? Are they insured? What do they do?
WC Subcontractors 1. Verify subcontractors are insured by looking at certificates of insurance or a copy of the subs WC policy. 2. If sub is insured, they are excluded from the work comp audit. 3. If they are uninsured, you treat them like an employee of the insured and classify them to the appropriate WC classification an employee would be assigned to if they were doing the work. WC Subcontractors What do you do if they have a signed waiver? Check state rules. Does the state except the waivers? If so, exclude them. Check with the insurance company. Do they have a specific waiver they accept? If so, exclude them if they meet the customers requirements. If the state does not accept a waiver and the insurance company does not have specific waiver they use, it is recommended to include the sub and provide the insurance company the information to base their decision upon. General Liability The standard Commercial General Liability Policy defines your work as: a) Work or operations performed by you or on your behalf; and b) Materials, parts or equipment furnished in connection with such work or operations.
General Liability Subs fall under work performed on your behalf. Does not replace subs responsibility to purchase their own GL coverage. So. What does it cover? Adequately insured subcontractors General Liability Subcontractors must have their own General Liability Insurance. The insured s GL policy covers the insured for the presence of the subcontractor on their job site. Defense costs Negligent hiring of an incompetent Subcontractor Subs that don t have adequate limits of insurance General Liability Adequately insured subcontractor: The subcontractors limits of liability on their insurance policy is equal to or greater than the limits of liability of the hiring contractor.
Adequately insured subcontractor classifications GL Construction, reconstruction, erection or repair, not buildings- NOC 91581 Building construction, reconstruction, repair or erection: apartments or office buildings over four stories 91582 one or two family dwellings 91583 for industrial use 91584 NOC 91585 Oil or gas field construction, reconstruction or repair 91586 Pipeline (other than oil or gas) or communication or power line or power line construction, reconstruction or repair 91587 Bridge tunnel or elevated street or highway construction, reconstruction or repair 91588 Street or highway construction reconstruction or repair - not elevated 91589 Insured Subcontractors GL Rule 24F F. Total Cost The total cost of all work let or sublet in connection with each specific project including: 1.The cost of all labor, materials and equipment furnished, used or delivered for use in the execution of the work, however, do not include the cost of finished equipment installed but not furnished by the subcontractor if the subcontractor does no other work on or in connection with such equipment; and 2.All fees, bonuses or commissions made, paid or due. The rates apply per $1,000 of Total Cost. Cost of all labor, materials and equipment furnished, used or delivered for use in the execution of the work All Labor All materials furnished, used or delivered for use in the execution of the work All equipment furnished or used in the execution of the work Use fair rental value of equipment Does not matter who furnished the materials or equipment, they must be added to the cost of subs if not already included. Hiring contractor Third party Do not include the cost of materials and equipment furnished, used or delivered for use to employees and/or inadequately insured subcontractors.
Include costs such as: Cable television hook up, exterminators, carpet cleaners, carpet installers, concrete pumping, Interior decorating preparing the building for the owner or tenant Equipment furnished 33 1/3% Rule If equipment is rented with a driver for a subcontractor or for employees include the payroll of the driver as if the driver was an employee. If payroll is not available include 33 1/3% of the contract price for the driver as if the driver was an employee of the insured. Do no include both as a subcontractor and 33 1/3% for the driver. Include driver only. Rule 24.E.2.I Payroll Inclusions l.the payroll of mobile equipment operators and their helpers, whether or not the operators are designated or licensed to operate automobiles. If the operators and their helpers are provided to the insured along with equipment hired under contract and their actual payroll is not known, use 1/3 of the total amount paid out by the insured for the hire of the equipment;
You re auditing Big Buildings R Us, Inc. They hired Excavation, Inc. as a subcontractor. This is a large corporation with many employees. Excavation Inc. brings several backhoes to the job site along with drivers to operate the backhoes. Hired to dig the foundations for the projects the insured is working on. The insured gives the blue prints for the project to Excavation,Inc s managers. They bring out their crew and supervise the project to completion. They have valid certificates of insurance for Work Comp. & General Liability How do you handle for General Liability? How do you handle for Work Comp? You re auditing Big Buildings R Us, Inc. They hired ABC Crane, Inc. as a subcontractor. This is a large corporation with many employees. ABC Crane brings a crane to the job site along with a driver to operate the crane. Hired to lift metal girders in place for a high rise building project. The insured s job site supervisors direct the crane operator on where to place the girders. They have valid certificates of insurance for Work Comp. & General Liability
How do you handle for General Liability? How do you handle for Work Comp? GL -Fees, bonuses or commissions made paid or due Includes fees charged by subs who are performing tangible construction work on the job. Fees: Do not include professional feessuch as engineering, architectural, accounting, and legal work etc. GL Rule 24 F Exception Do not include the cost of finished equipment installed but not furnished by the subcontractor if the subcontractor does no other work on or in connection with such equipment.
GL Rule 24 F Exception To qualify for this exception, all three of the following criteria must be met 1. The equipment installed must be in a finished state the piece of equipment does not require any additional assembly by the subcontractor. 2. The equipment was not furnished by the subcontractor. 3. The subcontractor performed no other work in connection with such equipment. GL Inadequately & Uninsured subcontractors Treat as if they are employees of the insured. Assign to the specific payroll based construction classification that best describes their operations at a particular job or location. GL &WC -Inadequately & Uninsured subcontractors CLM does not provide guidance on what is included in the basis of premium for inadequately insured subcontractors ISO recommends following the NCCI rule concerning uninsured subcontractors: If the actual payroll is available, include only the payroll foremployees while they were working on your insured s project(s). If the payroll records are not available and the subcontractor supplied labor and materials, not less than 50% and up to 100% of the total cost should be included in the audit. If the insured cannot provide this split, include the entire amount paid to the subcontractor as payroll. If the payroll records are not available, and the subcontractor provided labor only, the audit would include not less than 90% of the amount paid to the subcontractor as payroll.
Inadequately & Uninsured subcontractors $10,000 contract The contract shows 5,000 labor & 5,000 materials What % would you use? Inadequately & Uninsured subcontractors $10,000 contract The contract shows 8,000 labor & 2,000 materials What % would you use? Inadequately & Uninsured subcontractors $10,000 contract The contract shows 4,000 labor & 6,000 materials What % would you use?
General Liability -Temp or labor services There is an exclusion in the General Liability policy that excludes coverage for employees who are under the care, custody and control of another employer. It does not matter if you see a certificate of insurance for General Liability coverage for temp or labor services because of this exclusion. Watch closely for this exposure, you will find it comingled with subcontractors. This exposure is included at 100%. The 50/90 rule does not apply. GL Rule 24 Payroll Inclusions The payroll of leased workers furnished to the named insured by a labor-leasing firm. Classify as if they were employees Use 100% of contract price unless a definite amount of the contract price is for payroll. Fees Paid to Employment Agencies for Temporary Personnel. Classify as if they were employees Use 100% of the fee paid. Leased Workers Workers Compensation It is critical to review the contract and endorsements to determine who is responsible for the WC insurance. If insured by company who leases them, do not include. General Liability Include as if an employee 100% contract price unless definite amount of contract price is payroll Certificate of insurance does not matter Look for valid Certificate of insurance or contract
Fees paid to Temp Agencies for labor Workers Compensation Look for valid Certificate of insurance If insured, do not include General Liability Include as if an employee Use 100% of fee paid Certificate of insurance does not matter Independent Contractors - GL For General Liability handle just like any other subcontractor. If adequately insured include in the appropriate insured subcontractor class code. If uninsured or inadequately insured classify them based on the type of work performed as an employee of the insured. Independent Contractors - WC Are they an independent contractor or a contract laborer? 1. Does the independent contractor operate their own business? Do they have an occupational or business license? 2. Do they have any employees? 3. Do they have general liability insurance for their business? 4. Do they advertise their business? 5. Who directs the day to day operations of the independent contractor while they work on the insured s job site? 6. Who furnishes the equipment used? 7. How is the contractor paid? By the hour? By the Job? 8. Is the work performed the same type of work the insured s employees perform?
Independent Contractors - WC Most states do not require true independent contractors to carry Work Comp Insurance since they do not have employees. If you can prove independent contractor status based on the questions asked, you can exclude them from the Work Comp audit. References ISO Commercial Lines Manual PAAS NCCI APA 91 & APA 92 Overland Solutions Training Dept.