Do I Have To Buy A Workers Compensation Policy To Work For A General Contractor?

Another question from Missouri! We received a call from a small contractor in Missouri who operates his business as a sole proprietorship, has no employees and does all the work himself. He wants to do work as a subcontractor for a larger general contractor and was told by the general contractor he would need to have a workers compensation policy in place that provides coverage for himself. He was told by his insurance agent that he did not have to do this and under Missouri rules was excluded from coverage. He’s confused!

This is an age old question and one that frequently comes up. I’m not going to go into the depths of “why this” or “why not that.” I’m just going to get to the point.

  • Fact 1 – Correct…in Missouri, a sole proprietor or individual owner is automatically excluded from coverage under a workers compensation policy. However they can buy a policy and make an election to be included.
  • Fact 2 – An uninsured subcontractor working for a general contractor, if injured on the job, can make a claim against the general contractors workers compensation policy and be compensated.
  • Fact 3 – If an insurance company has the potential to pay a claim then they are due a premium for that exposure.
  • Fact 4 – Even though the subcontractor may not be required under Missouri Statute to have coverage on himself, if proper coverage on the subcontractor is not in place, the general contractor will be charged by his insurance company for the uninsured subs exposure.
  • Fact 5-  Reality….if the subcontractor wants to work for the general he is either going to secure a workers compensation policy that provides coverage for himself or work out some arrangement to compensate the general contractor for the extra cost he’s caused.

Don’t forget, each state has its own rules about workers compensation that may apply differently. And there’s a great deal more about this situation that must be taken into consideration.  Important things, like the effect a claim by an uninsured subcontractor may have on the general contractors experience modification factor and loss history and more.

From a generals point of view, they should always hire insured subs. From the subs point of view, they need be aware of the problems that come out of not having a valid workers comp policy on themselves!

Lesson Learned: If you are a subcontractor be aware of the effect of not having a work comp policy in place may have on your ability to secure work. If you are a general contractor be aware of the negative effect hiring uninsured subs may have on your workers comp program!