Hiring a subcontractor without workers' comp: what could happen and what to ask
What may happen if a subcontractor has no workers' comp, how it could affect your audit, why the answer varies by state, and questions many GCs ask before the first payment.
Not advice. General information only, based on our research of publicly available sources, which can change. It is not legal, insurance, tax or accounting advice. Rules can vary by state, carrier and contract, so please talk to your insurance agent, attorney or tax professional about your situation.
In short: If a subcontractor has no workers' comp, a general contractor may become responsible for that sub's injured workers, depending on the state, and the money paid to that sub may be added to the GC's payroll at audit. Rules vary widely. Many GCs ask for a certificate or an exemption document before the first payment, and ask their own agent how a sub without coverage would be treated.
A sub gives you a good price and says, "I don't carry workers' comp, it's just me." It's a common situation, and there's rarely a single answer, because it depends on your state, your carrier and who actually does the work.
Here's a general look at what could happen, plus questions you might want to ask before anyone starts.
Two ways it could land on you
1. An injury on the job
Many states have rules that can reach up the chain to the contractor who hired the sub. Nationwide's premium audit guide says: "Most state Workers Compensation laws will hold you responsible for injuries sustained by an employee of an uninsured subcontractor."
Florida's law shows what this can look like in writing. Section 440.10 of the Florida Statutes says a contractor who sublets work "shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment." It also says: "A contractor shall require a subcontractor to provide evidence of workers' compensation insurance."
Other states word this differently, and some are quite different overall. An attorney or your agent can tell you how it works where you build.
2. The audit bill
Even with no injury at all, an uninsured sub could show up at your workers' comp audit. Nationwide says: "If no evidence of insurance is available, the subcontractor's payroll may be added to your premium base as payroll."
In practice, what you paid that sub might be treated like payroll you ran yourself, and premium could be charged on it. Our guide to workers' comp audits and subcontractors walks through an example with numbers.
"It's just me": sole owners and exemptions
Many subs without a policy are one-person businesses, and this is where it can get confusing. A few things that may matter:
- Some states let certain owners opt out by filing an exemption. Florida's construction exemption is one example, and the state issues a document for it.
- Being exempt and having no paperwork are different things. A sub saying they're exempt isn't the same as a document you can keep on file. Many GCs ask for the document itself.
- An exemption may only reach the owner. If the sub brings a helper, that helper might not be included. It's worth asking who will actually be on the job.
- Your carrier may have its own view. Nationwide notes that, depending on state law, someone claimed to be a subcontractor who has no employees of their own and whose duties "closely resemble those of an employee of yours" may be "considered an employee for audit purposes."
State rules can differ a lot
Workers' comp is largely set state by state, so advice from a contractor in another state may not apply to you.
Texas is a useful contrast. The Texas Department of Insurance says private employers "can choose to carry workers' compensation insurance coverage, but it is not required in most cases." A sub in Texas may legitimately have no policy, and your carrier could still ask how you handled it. Rules that apply to one trade or job type may not apply to another, so your state's agency and your agent are good places to check.
Questions many GCs ask before the first payment
These are common starting points, not a required list.
- Do you carry workers' comp? If so, could your agent send a certificate?
- If not, why not? Is there an exemption, and can you send the document?
- Who will be on my job? Just the owner, or a crew, helpers or their own subs?
- When does the coverage end? The dates on the certificate may matter as much as the certificate. How to read an ACORD 25 shows where to find them.
And one for your own agent: "How would you treat a sub with no policy on my audit?" Some carriers may charge premium on those payments, and some contractors decide to budget for that. It's your call, and your agent can help you weigh it.
If you've already paid a sub without coverage
One option is to ask the sub for a certificate or exemption document for the dates they worked, since they may have had something all along and simply didn't send it. If there's truly nothing, it's probably worth raising with your agent before the audit rather than during it.
Frequently asked questions
Can I hire a subcontractor without workers' comp?
It depends on your state, the work and your contract requirements. Some states let certain business owners exempt themselves, and some don't require coverage in most cases. Others can hold the contractor responsible. Your agent or an attorney can tell you how this applies to you.
Am I responsible if an uninsured subcontractor gets hurt?
You might be. Nationwide says most state workers' comp laws will hold you responsible for injuries to an employee of an uninsured subcontractor, and Florida's statute makes contractors liable unless the sub has secured coverage. How it plays out depends on the state and the facts, so an attorney is the right person to ask.
Will an uninsured subcontractor raise my workers' comp premium?
It could. If there's no evidence of insurance for that sub, a carrier may add what you paid them to your payroll at audit, and premium may be charged on that amount.
Is an exemption the same as having workers' comp?
No. An exemption generally means an eligible owner opted out, so there may be no policy behind it. Many GCs keep the exemption document on file, and ask their agent how the carrier treats it.
How CertiSub is designed to help
CertiSub keeps each sub's certificates and exemption documents in one place, shows which subs have no certificate on file, and compares your logged payments with the certificate dates on file. If a sub has a confirmed exemption document on file, CertiSub shows "Exemption document on file." It records that you filed one, and whether it applies is a question for you and your agent.
This article is for general informational purposes only. It reflects our research of publicly available sources as of its publication date and may not be complete or current. It is not legal, insurance, tax or accounting advice, and reading it does not create any professional relationship. Requirements can vary by state, insurance carrier, policy and contract. Before making decisions, consult a licensed insurance professional, an attorney, or a tax professional about your specific situation. CertiSub is a recordkeeping and document-organization tool. It tracks the documents and dates you provide. It does not verify insurance validity or provide legal, insurance, or compliance advice.