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From the Trenches ... Do I have to carry workers compensation insurance?

Jun 08, 2010

Question         I am a Limited Liability Company doing home remodeling and am the only person in the LLC. I have no employees as I hire only contract labor but one of my clients is asking for proof of workers compensation insurance. It is my understanding that I am only required to carry workers comp if I have employees but the client is saying I must give them proof of insurance. So, who is right?



Answer            You are both right.

You are right in that while workers compensation insurance requirements vary from state to state, commonly the principals of a business can exempt themselves from having to be covered and with the exception of a couple of states, there is no legal requirement to carry workers compensation insurance on independent contractors. This is just the situation in your state and you are not required ... by law ... to carry workers comp on yourself or the independent contractors that perform work for you.

So, if you are not legally required to carry workers comp, how can I also say that your client is also right by requiring you to do so? The simple fact is that even if you are not legally required to carry workers compensation insurance, it is common for business clients to require that their contractors carry it as protection in case someone is injured while working at the client’s location ... and they get sued.

This situation is no different then when a client requires you to carry liability insurance. In most cases, a business is not required to carry any form of business liability insurance, but most business clients are going to require you to show proof that you have a current liability policy and often will even specify the minimum coverage that you have to carry.

So, your client is requiring you to carry workers compensation to protect them against a claim in case one of your independent contractors, or even you, are injured on the job. And their position can be that if you want to do work for them, you have to comply with what they require for you to be on the job. If you don’t want to meet their requirements, they can take the position that they will do business with someone else.

What you have to do is figure out if carrying workers comp is in your budget and if you decide not to carry it, how it will affect your business revenue. If this is the only client that is asking you for workers comp and you don’t want to carry it there are a couple of tactics you can try. The first is to offer to sign a release of liability in case there is any type of injury and get all your contractors to also sign a release. The client might accept this in lieu of you carrying the insurance.

If the client will not accept a release of liability, ask them if they would be agreeable to include your contractors under their workers comp policy and that you would reimburse them for the additional policy costs.

If neither of these options works and you still want to work for this client, get a quote for a workers comp policy and readjust the rates you charge to pass the costs on to your clients as a cost of doing business.

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