AUDIT, CLAIMS, UNDERWRITING
Why were the Independent Contractors that I hired included in the final audit?
Because either the contractor hired did not have valid insurance while performing services for you during the policy period being audited, or because you as an employer maintained some degree of control over how the contractor conducted the job for which they were hired to do.
Many employers hire Independent Contractors (IC) or Sub-Contractors (SC) to perform various services for them. Sometimes these services are completely unrelated to the overall operations of the employer while other times the services may be directly in line with the employer’s typical operations.
The two most common problems encountered when hiring an IC or SC are:
- Employers hire a contractor without securing confirmation that the company or individual hired actually has insurance place to protect its employees in case of an accident.
- Employers operate under the false assumption that paying a hired contractor by 1099 automatically disqualifies the contractor from being considered an actual employee, especially for workers’ compensation purposes.
Pennsylvania law suggests that you as an employer may be liable for injuries to an employee of an uninsured contractor that you have hired. This may be particularly applicable if the injury occurs when performing work that may be deemed to be a part of, or a process of, your daily operations.
In most cases your liability to an injury sustained by a hired contractor can be reduced or eliminated by simply securing a Certificate of Insurance from each contractor that you have hired. This Certificate confirms that the contractor has secured a general liability insurance policy or a workers’ compensation insurance policy.
Due to the potential workers’ compensation liability posed by the hired contractor, if a Certificate is not available at the time of audit, the contractor’s pay will be included in the gross payroll used to determine the premium charged for your workers’ compensation insurance policy. The wages paid to the contractor will be separately identified on the audit as uninsured subcontractor wages.
Many employers operate under the impression that simply paying an individual or company by a 1099 disqualifies them from being considered an employee and this simply is not true.
There are many questions that need to be answered to determine whether an employer-employee relationship exists and most of these are established by the IRS. The litmus test of them all is simply whether the employer exercises any degree of control over the hired contractor, regardless of whether the contractor is a company or an individual.
If the employer possesses any degree of control over the hired contractor then the contractor will be considered an employee for workers’ compensation purposes. Any wages paid to that contractor will be included within the gross payrolls used to determine the premium charged for the workers’ compensation policy in question. The wages paid to the contractor will be separately identified on the audit as uninsured subcontractor wages.
Control can include things such as:
- Scheduling appointments for a contractor
- Requirement of attendance at regularly scheduled meetings
- Requirement of submitting written or oral reports
- Requirements on when, where or how to complete a job
- Supplying tools to complete the job
- Reimbursement of expenses of a job
Another area of concern is where the contractor is performing a job that is in direct line with the typical operations of the company. In this case the IC or SC can be considered an employee, especially if the employer has employees who already perform the same functions for the company that the contractor was hired to perform.
We encourage you to contact our Underwriting Department with any questions concerning hiring a IC or SC and for more in-depth management procedures in the use of Certificates of Insurance to limit your premium liability.
Will my payroll information be safe?
All information obtained through the audit process will be used for insurance purposes only. This information will not be made available to others unless directly authorized by you or as is required by law.
What if I disagree with the final audit?
If you find yourself in disagreement with the final audit, the payroll figures used or the classifications assigned to an employee, you have the right to dispute the audit.
The dispute must be made in writing and be signed and dated by an owner or Officer of the Company. The written dispute must be received in our office by no later than 10 business days from the date of the Final Audit billing statement.
Am I required to submit a claim for an alleged work related injury?
Yes, PA Law requires that if an employee provides knowledge to their employer that they may have suffered a work related injury or disease, the employer is mandated to submit an injury report to its WC carrier. The report should be filed with the carrier within 24 hours of such notification.
Can I change payment options mid-term?
We prefer that you remain in the payment plan that is currently offered on your policy, but if you find yourself in need of an adjustment please call the Underwriting Department for a review of your concerns and for consideration of a payment plan adjustment. There are no guarantees that a payment plan adjustment can be made mid-term.
I am an Officer of a Corporation, can I exclude myself from coverage?
Yes you can exclude yourself from coverage if you are an Officer of a either a C-corporation in which you own 5% or greater of the company, or an S-corporation where you have an ownership interest in the corporation. There are Officer exclusion forms that are required to be completed when opting out of coverage and these forms must be executed prior to the workers’ compensation policy taking effect. You cannot opt out or into coverage during a policy term.
What is the Employer Assessment Factor (EAF) Charge?
The State requires that all carriers charge the same rate. The rate will change in April of each year. The money collected from the EAF will be paid back to the State and is used for the maintenance of three funds, the Subsequent Injury Fund, the Workmen’s Compensation Supersedeas Fund and the Workmen’s Compensation Administration Fund.