An increasing number of Pennsylvania businesses are paying thousands more for workers’ compensation than necessary because of our state law’s vague treatment of subcontractors. While businesses must buy coverage for employees, many businesses use subcontractors instead of employees. What is a business’ obligation to provide workers’ compensation for subcontractors? Some judges and courts have strayed from law’s original intent and fostered confusion.
Our law requires general contractors to cover the employees of subcontractors when the subcontractor has not purchased separate workers’ compensation. But the law does not require coverage for the subcontractor himself. The “one-man” business or “sole proprietor,” like every business, is responsible for his own coverage. In real life, however, the sole proprietor may or may not be on his own for coverage and the general contractor may or may not be liable to cover him. The law has never clearly spelled out a definition for a sole proprietor nor has it made clear that general contractors are not liable for sole proprietors. As such, there are instances where sole proprietors still successfully file for benefits after they have been injured. Insurers get stuck paying for benefits for which they never collected premium. Because of this, an increasing number of skittish insurers are erring on the side of caution by charging general contractors premium for all of their uninsured subcontractors regardless of whether the subcontractor has employees. This can mean thousands of dollars in premium general contractors should not have to pay. I have heard of one premium increase so severe the business almost went out of business.
The Insurance Agents & Brokers of Pennsylvania is supporting legislation to provide a clear definition in state law for “independent contractor” and allow sole proprietors to certify that they meet the statutory definition. Certified contractors would be barred from claiming benefits from their general contractor. It will provide the bright line test needed to save many small businesses thousands of dollars.
George F. Komelasky is chairman of the board, Insurance Agents & Brokers of Pennsylvania.
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