Workers Comp Exemption for Subcontractors: What General Contractors Must Check
Some subcontractors tell you they do not need workers' compensation because they are exempt. Sometimes that is true. But if they are wrong, the injured worker's claim can land on your policy, so the exemption needs to be on paper and current.
Why the general contractor is on the hook
In many states, if a subcontractor fails to carry workers' comp, the general contractor above them is treated as the employer of the sub's workers for that job. That is why your insurer's annual premium audit asks for a certificate of insurance or exemption for every sub you paid, and charges you premium on payments to subs who cannot show either.
What a workers comp exemption is
Each state decides who may go without coverage. Common examples are sole proprietors with no employees and certain business owners or officers who elect out. The proof is usually a certificate issued by the state, not a letter from the sub. An exemption normally covers only the owner or officers named on it. The moment the sub brings a helper to your job, that helper needs coverage.
Florida: certificate of election to be exempt
Florida is the state with the most searches on this topic. In construction, a limited number of corporate officers or LLC members who own at least 10 percent of the business may apply to the state Division of Workers' Compensation for a certificate of election to be exempt. The certificate names each exempt officer and expires after two years. Anyone else working for that company on your job must be covered. You can verify an exemption on the Division's online lookup before the sub starts.
What to keep on file for each sub
- A certificate of insurance showing workers' comp, or the state-issued exemption certificate.
- The names of the exempt owners or officers, so you can see who on site is covered and who is not.
- The exemption's expiration date, tracked the same way as an insurance policy.
- A note in your subcontract that the sub must tell you if they hire anyone.
At premium audit time
Give your auditor a list of every sub you paid during the policy year, with the certificate or exemption that was valid on the dates you paid them. Gaps usually become extra premium.
This guide is general information, not legal or insurance advice. Workers' compensation rules differ by state.