What it means
At a workers compensation audit, payments to subcontractors who lacked their own workers compensation coverage are often added to the hiring business’s payroll and charged at the matching classification rate. In many states, including California, a hiring business can be responsible for injuries to an uninsured subcontractor’s workers.
General liability audits can work similarly. Many contractor policies charge premium on the cost of uninsured or underinsured subcontractors, sometimes at a higher rate than insured subcontract costs.
The usual defense is documentation. Collect current certificates for every subcontractor before work begins and keep them with payment records for the audit.
An example
Pacific Ridge Builders paid a drywall crew 60,000 during the year but never collected a workers compensation certificate. At audit, the insurer adds the 60,000 to Pacific Ridge’s payroll under the drywall classification and bills the additional premium.
Names in this example are fictional.
See this term in your own contract.
Send a lease, subcontract or client agreement with the policies you hold. You get every insurance requirement in it, cited to the clause, set against what your policies say. Free, and back within one business day.
Get a free contract checkUninsured subcontractor charge, answered
How do I avoid uninsured subcontractor charges?
Collect a certificate of insurance from every subcontractor before work begins, confirm the policy dates cover the work period, and keep the certificates with payment records. Recheck renewal dates during long jobs. If a subcontractor has no employees and no workers compensation policy, ask your insurer what documentation it will accept.
Am I responsible if an uninsured subcontractor’s worker is hurt?
You can be. In California and many other states, a hiring business may be treated as the employer of an uninsured subcontractor’s workers for workers compensation purposes, especially when the subcontractor is unlicensed. That exposure is why insurers charge for uninsured subcontract costs and why certificate tracking matters.
General information only. It is not legal or insurance advice. Only issued policy documents and endorsements describe actual coverage.