Who Pays Workers’ Compensation for Subcontractors?

The question of who pays workers’ compensation often depends on the relationship of the subcontractor with the hiring party. Usually, the subcontractors fall under the category of independent contractors who are responsible for securing workers’ compensation coverage for themselves. However, Minnesota’s laws have certain nuances that may require a general contractor to extend the cover under certain conditions. Schmidt & Salita Law Team is here to help businesses and workers understand and comply with this confusing area of employment law.

What is Considered as a Subcontractor?

A subcontractor is generally an independent contractor who executes work based on a contract arrangement with a general contractor. Subcontractors are differentiated from regular employees in that they are not on the payroll of the employer and do not enjoy the usual benefits accorded to employees.

Minnesota law differentiates subcontractors based on the extent of control a hiring party exercises over their work, tools supplied, and whether the putative subcontractor may work for multiple clients. In the construction industry, for example, subcontractors often work under their own licenses, have specialized expertise, and use their own tools and materials.

The terms of engagement should be put in a written agreement by hiring parties, and this should give the role, responsibilities, and insurance requirements of the subcontractor to avoid disputes in the future or misunderstandings. Proper documentation helps determine the independent status of the subcontractor and ensures, in this regard, compliance with Minnesota’s labor laws.

What Kind of Insurance Does a Subcontractor Need?

Workers’ compensation insurance will be required for all subcontractors to cover themselves and their employees against work-related accidents. It will pay the costs of medical treatment, lost wages, and sometimes rehabilitation.

Minnesota requires workers’ compensation insurance for all employers who have employees, but independent contractors can be exempt if they meet specific conditions. Subcontractors may also be obligated to carry liability insurance, which covers property damage or third-party injuries while working on a project.

Depending on the nature of the subcontracted work, specialized trade subcontractors may need insurance in addition to workers’ compensation and liability insurance.

What if My Subcontractor Doesn’t Have Insurance?

If one subcontractor does not have the required insurance, then the hiring party or the general contractor may be liable to provide the coverage. This can increase the liability risks and possible legal complications of the hiring party.

For example, under Minnesota law, if a subcontractor is not covered he may be treated as a statutory employee of the general contractor. It would mean the general contractor’s workers’ compensation policy may be required to provide coverage for a claim. In addition, hiring parties not checking for insurance may also face penalties or legal action. The National Association of the Remodeling Industry says this can happen if a subcontractor is uninsured on a job, and then holds the general contractor liable over an injury or other loss.

To avoid some of these risks, hiring parties should have a strict vetting process in place. This includes making a request for a COI from subcontractors and keeping a record of the same. Ongoing review of insurance documents will help to ensure they are current for the duration of the project.

Who Pays Workers’ Compensation for Subcontractors?

Liability in Minnesota can be transferred based on the legal and contractual terms between parties. The subcontractors are normally expected to carry their own coverage. If a subcontractor fails to do so legally, then it is up to the hiring contractor to provide compliance.

Hiring parties should request proof of insurance from subcontractors before work begins. A Certificate of Insurance, or COI, is the standard documentation used to confirm active coverage. This proactive step minimizes liability and ensures all parties meet the state’s legal standards.

Besides that, hiring parties can gain from engaging legal experts to formulate solid contracts that indicate the responsibilities of insurance quite clearly. The agreement might include an indemnification clause as an extra line of defense that requires a subcontractor to reimburse the hiring party for losses or claims caused by not having insurance coverage.

The Impact of Workers’ Compensation on Subcontractor Relationships

Workers’ compensation coverage does more than meet a legislative requirement; it fosters positive and constructive relationships between contractors and subcontractors. Ensuring all parties involved are well-insured at all touchpoints creates the foundation to ensure trust and professionalism among the parties involved. That gives proof the hiring party is concerned with safety and compliance, perhaps strengthening their long-term partnerships.

Third-party insurance can also make subcontractors far more competitive in the market.

Contact Schmidt and Salita Law Firm for Expert Guidance

Protecting your rights and understanding your obligations regarding workers’ compensation for subcontractors is vital for maintaining compliance and avoiding costly disputes. Schmidt & Salita Law Team specializes in workers’ compensation cases and offers tailored advice to businesses and workers in Minnetonka, MN. Contact us today for a free consultation.