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I just completed my first Workers Compensation audit, curtisy of my carrier. I have been hit with a bill for just over $8,000 for paying sub contractors who did not carry their own policy.
The surprise is due to the fact that, as explained to me by the agent who sold me the policy, in Tennessee subs can elect to waive I/I coverage by signing a Form I-18.
I accepted these forms from several subs (and crews) who elected to waive coverage in lieu of me backing money from invoices.
When the auditor arrived, he informed me that employees to my sub contractors can not waive coverage.
I agree that all employees should have coverage, but this lesson is very expensive.
My question is: Do I have any chance of getting out of this bill? And, I use many of the same uninsured subs as other GCs–how do they avoid this?
Also—before I get a verbal assault online—I do not have any employees that I pay as “sub contract” help to avoid taxes and the like.
Replies
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Tenn. is different from RI.. and the WC laws are different too...
RI used to be the same screwed up mess... anyone with MORE than 3 employees was supposed to have comp.. but few did...then when the claims started going thru the roof.. the insurers all pulled out of RI..
so they had to reform the law....two things happened..
they changed it to where everyone with ONE employee had to have comp...
and they required all licensed contractors to state IF they had employees.. if they did , they had to have a current WC cert. on file with the Licensing Board..
before that it was just hell, it was like pulling teeth to get the documents you needed to avoid paying after an audit..
now it works.. MOST of teh guys i deal with are either REAL sole props WITH NO employees or they ave WC....
you're screwed.. there should be a SHORT grace period where you can solicit Certificates from teh named subs.. and SOME will have WC now.. but the rest.. unless your auditor didn't know what he was talking about.. good luck..
see if they will give you terms so you don't screw up your cash flow..
ask your Builders Association for advice... they deal with the issue all the time...
b but hey, whadda i no ?
*Brian, I also live in Tennessee, Sevierville to be exact. I use the self insured trust through our local HBA.The trust allows me to break down in-house payroll per items of work being done. I don't have to lump everything into the highest governing class, generally rough carpentry.Teneessee also states that employers with one employee have to have comp, but it's difficult to enforce. Help is hard to find anyways so I sometimes am forced to use uninsured subs. I usually include extra in my overhead to cover the extra insurance expense.If you can get your uninsured subs to itemize their bill as to how much was employee labor, how much was materials, and how much was owner compensation, then you will only have to pay on the employees wages. Otherwise they generally use 90% of the gross payout.
*Brian,You may be sunk.......but maybe not. Here in Texas I sign a Workers' Comp waiver with each and every GC I work for. (We don't carry Comp.....25% of each dollar I make.....no thanks). It's standard business these days. Talk with your insurance man and see if it's not to late to get waivers from the subs. It may be, but it may not. I don't know. They may work with you on this one this time seeing as how you didn't know. If they just won't try to help you out, I'd find another insurance carrier. That might get their attention.Good Luck,Ed. Williams
*Ed. ...ok if you don't want to carry WC...but it drove me crazy when i didn't have it..(((We don't carry Comp.....25% of each dollar I make.....no thanks). It's standard business these days. ))we had WC for 17 years, and then things tanked around here, i went naked for a year.. then tried no employees for a year.. then (subs) for two years.. but with WC reform here in RI, i went back to Fully Insured.... actually, if you're doing general carpentry, it's gonna be closer to 12% of the rate you pay your carpenters... and like 1% for office help, and IF you go out and do a limited amount of work, besides supervision.. YOU can be covered for about 5%.. (try buying a disability policy for that)..most of the WC laws have this in common: if your state doesn't require it.. there is usually a clause in the law that says you don't have to have it, but you are financially responsible for job related injuries..so, worst case... a fork lift operator drops a load of 2x4 on one of your workers ... he's a paraplegic for life... guess who his lawyers come after.... and get..that 's what is ""standard business "" these days..no matter who it is, even if it's your brother, what choice does an injured worker have , but to hire a lawyer and get his employer to pay his med. bills and support his family...then.. by-by to everything you worked for...and forget the corporate veil too..Texas may be for the rugged individual.. but their lawyers are just as smart as everywhere else...of course.. i could be dead wrong about this too...it being Texas.. but i doubt it...assuming the carpenter rate being 1/3 of your overall costs, and 12% WC being added to that 1/3.. the total cost to your bottom line is in the neighborhood of 3 to 4 %... and you can sleep like a baby...
*Hey Mike,Thanks for your concern. You're not the only person here that is scared about dropping Comp. And yes, I may joke about being a yahoo, but I'm not and neither is the legal profession. We do have an insurance policy the covers the employees for on the job accidents. It covers up to 75% of the employees' income for up to 2 years should he be injured on the job. It also covers a single accident coverage up to $300,000.00. If a man is killed on the job, God forbid, it pays his estate $200,000.00. I've been told that the benefits our insurance offers for on the job accidents is better than the union. AND, it's far more competitive than WC. You want to pay the big bucks? Fine. There are other options. Carpenters who do full service are still at about 25%. When we dropped it in 1990 we were 24.4%. Check it out. We are put in the catagory of our greatest risk. Sure, most of our work is trim and cabinets, but the occasional remodel puts in the higher rate. Ask your insurance guy about that. Now, what our policy doesn't do is cover my butt for law suits against my corporation. So be it. It also doesn't pat a man on the back and give him big money for cutting off his own damn finger like Workers Comp does. Everybody that works for us knows the score. I'm not hiring warm bodies off the street here, these guys are real professionals. This ain't their first bar-b-que.So far....11 years in business.......no claims, and I don't expect any. I'm not going to hire someone stupid enough to stand under a forklift full of studs. If that's the kind of people you hire, then you better insure your ass all the way up to your neck.Sleeping just fine,Ed.
*actually.. the worst case was the GC's forklift dropping a load of studs on YOUR worker, not a question of stupid or not...shit happens to the best of us..if your policy lets you sleep at night .. good on ya..but it doesn't have the same status under the law that WC does..and i've checked the rates and the classifications.. seems strange that Texas has higher rates for carpenters than UNION dominated Ri..if we keep seperation of hours by WC classification, we can pay the rate for each one.. but i'm also allowed to pay under our most prevalent work.. one and two family house carpentry...painters and roofers are the only ones in the rate price you're talking about..
*Dave and I are leased from an employee leasing company. They charge me 18% which includes W/C, all state and federal taxes. I filled out a form stating roughly what percentage of work we do annually in the various trades that I'm licensed to perform. I went that route because it saves me about 1/2 or more of the W/C rates I'd have to pay even thru our local HBA and NAHB.Don't use subs without W/C.
*Like you said Mike.......Texas is the place for rugged individuals. If you can't take the heat, stay out of the kitchen.Ed.
*Ed,I got to agree with Mike here.I think you have mentioned in other threads that your company has about 20 employees.I believe in my area running 20 employees without WC would be considered HIGHLY illegal.Most would consider it equally un-ethical as well.Besides ,not very smart.You may take comfort in Texas being the land of the rugged individualist,but I suspect strongly that when push comes to shove,any of your potentially injured,maimed,parylized,or dead employees won't be taking pride in their rugged individualism. They will be taking pride in their lawyer who will take you for everything and more.I pay a similar to slightly higher rate than the one you mention.I am delighted to pay it out as I consider it a bargain for the protection it affords us.I feel the dollar limits of your insurance policy that you mention would be rapidly exceeded around here in virtually any moderately serious accident,certainly the dead $200,000 worker estate payment would be a likely area for trouble since $200,000 would not come anywhere near the dead workers projected lifetime earnings.Also,it's not 25% of every dollar you make. It's 25% of every dollar your EMPLOYEE makes.You haven't made a dime untill long after those costs and quite a few others have been covered.good Luck All,stephen
*Stephen,So what does Comp pay if an employee of yours gets killed on the job? Just curious. Does it pay out what his earnings would have been for the rest of his life? Worker's Comp is no longer mandatory. Even Jack-in-the-Box doesn't subscribe. I saw a poster on the wall at one of them about the company being self insured.Your right.....I misspoke. My rate was 24.4% of wages paid. My mistake. So if I pay a man $20 an hour, I'm paying about $5 an hour to the insurance company. So my cost for the employee is up to $25 before I add in profit and overhead. It just can't be done in a place like Dallas. We would all starve. I can't charge an additional 20 to 25% and expect to be hired. I'd love to have Comp for the liablity coverage, but I'd be out of business, so what good would it do? Yeah you guys, we are covered to the max, but no one will hire us because we are too expensive. Is that what I tell our carpenters? Or I say, OK......everybody takes a 25% cut in pay.......but man, are we insured or what!!!!!!! That will go over real big.You tell me. What's the answer?Ed.
*Ed. we were in the same mess in RI .. and so was Maine if i remember right..then they reformed the system (after all the insurers pulled out , and forced the legislature to do something)clsoed all the loopholes so everyone with ONE employee had to have it..created a fraud unit to police the employee abuses...and created a Captive Insurance company to insure anyone who paid the premiums.. after one year, the other insurers came back.. and rates started getting competitive again....that 's why the discrepency betwen your rates .. and mineafter my discounts my carpenter rate is under 10%..and i got those dicounts without doing anything.. but i'll lose them if we have a bad experience rating.. even then it'll be 12%...WC in the short term , wouldn't do anything near what yuour policy does.. but , it will take care of the injured worker for life... adn it protects the company from catastrophic judgement.. so one injured worker doesn't force you into bankruptcy adn kill the jobs of your other twenty guys....before reform of WC.. my guess.. 20 % of RI workers were covered, probably 5 % of construction workers..now , my GUESS is 70% of all workers.. and it would be higher except the self-employed sole proprietor is not required or eligible...
*Geez, your rates are high Ed. Rates here are 9.33 per hundred for rough carpentry, 6.34 for finish, (4.93 for furniture & fixtures, and 3.86 for millwork and cabinets).
*Ed,I think Mike has covered the workers comp situation pretty well.A few further things however .......Your position that workers comp is to expensive and to cover the payments would put you out of business doesn't quite work.It could equally be used to skip on social security payments,liability insurance,etc.(not that I think you do those things,but others do).I don't know your business enough to make a specific suggestion but I can tell you how I have handled with mine.(and my workers comp rates could potentially go as high as 38%)When I hired my first employee I knew I would have to cover that cost and I changed the type of work I would accept.I will only take on work that will allow the kind of charges necissary to exceed expenses. This means that a lot of formerly marginal priced work is no longer handled by us because it doesn't pay.I do a little lower volume but make more per job.This really limits the number of employees I can maintain,but ironically increases profits.In the past I used to sub out a good bit of work that came my way. I felt pretty secure because the sub provided a wc certificate.I no longer sub to him because,as I got to know the guys on his crew I learned they ALL were not covered.Some were covered ,some were "sub-contractors" and some were basically being paid under the table.No way I could garauntee myself OR the homeowner that only workers covered might be injured.So now the sub involved has lost the 16-18 roofs a year I formerly subbed out AND my guys are fully coverred AND I make better rates.Good Luck All,Stephen
*Mike,If I could just get a rate of 15% I would probably go with Comp. But the way it is now........can't do it. Damn shame.Ed.
*Stephen,Roofers in Texas, when I dropped out of comp back in 1990 were at over 40% and climbing. Trust me. We work 100% time and material. My business can't afford the best carpenters at the rate it takes to keep them and comp too. My hourly rate would be way over my nearest competitor. I'd love to see some reform of the Comp laws in Texas, but I don't see it anytime soon. I wish it was back where it used to be so that every business was required to have it. If you were a bad risk, you went in the state pool and the state forced some poor insurance company to cover you. At least those of us who ran an honest business were in the ball park with each other. The bootleggers were still out there, but it was easier to spot them.Working to make a change,Ed.
*Ed I wish you the best of luck and I hope things work out in the long run,but I wouldn't count on the state for help.We don't EVER work T&M for reasons I have often discussed in the past.We also don't do any new house construction roofing(although I personally used to have a nice arrangement with a local garage builder)Simply put,new construction market rates aren't high enough for me to cover my costs and make a profit.So instead of selling my services wholesale priced in new construction I sell them retail direct to established homeowners.Retail work allows me to make wc payments,liability insurance coverage,buy modest efficient equipment,survive 3-5 months of winter downtime,and modest retirement planning.working at new construction roofing rates would force me to adapt my costs to the price "others" have determined.Retail work lets me adapt my price to MY cost---not someone elses.BTW I bet Mike could tell you that new construction won't cover HIS costs either,but that(retail) remodeling and addditions do.What do you say Mike?Good Luck All,Stephen
*Here's my WC weigh in.I'm not fond of insurance, but our Wc policy is a bargain if we don't abuse it. We don't. I pay 7.75% on rough carpentry. I can also split my paroll and pay less (or more) depending on the classification. I get these excellent rates (I used to pay 15%) through the MHBC/Nahb membership. I basically pay $350 per year membership dues to saves thousands!Ed, your system is obviously different than ours and I don't envy you. But I would doublecheck your nahb rates and think about eliminating the occasional rough framing from your payroll by subbing it out to someone with wc. If you are only doing 10% rough, it doesn't seem fair that you should have to pay rough rates on all your payroll. Be aware that different companies have different policies and that you may be talking to the wrong insurers.Also, remember that the reason that rates are so high are because of actual numbers. A high rate indicates a higher probability of a serious, debilatating claim. Your trimming pros might just be MORE susceptable to rough injuries precisely because they don't live that life 52 weeks a year.And I agree that employees are entitled compensation after they fall victim to an accident. Indeed, if my son falls off the roof (he's working for me now) I'd expect him to have something other than a refrigerator box to live in should he become disabled. I wouldn't be able to live with myself if anyone that injured themselves on my accountand didn't have a lifetime income and medical services provided for them and their families if they became permanatly disabled. I don't care that much about the occasional digit donated to the learning process of the trade, I'm mainly concerned about the permanent disabilies that are a reality of our trade. Anyone that climbs a ladder is less than one second from a lifetime in a chair. I myself blacked out while driving home from work one day and easily could have dropped off the roof a half hour earlier. I pay Wc on myself for just that reason. I'm not concerned about a stupid move on my part ( I've manged to survive them all so far), but there are a lot more forces at work in my universe.Wc is cheap insurance at any cost. I simpy pass the costs on and expect the rest to do so. Ultimately the customer pays, and it is a very good deal for them too. I suppose I could cancel it and lower my rates, but I choose to eliminate toilet paper blocking and cover everyone!That was just a joke...I think.blue
*Blue,I did look into the union......that went nowhere. I'll try the Nationl Home Builders Assoc.. Good idea. Thanks.Ed.
*Regarding this discussion, here's the headline article of the Naples Daily News for Today:http://www.naplesnews.com/00/09/naples/a2506a.htm
*Steve... yes.. last new house i did was a long time ago.. i still like 'em,, just need the right customer...we only roof for our own account or direct for the homeowner.....and it's our price.. which has nothing to do with what the other guy is charging...geesh, sonny , you gotta take that ((posting a link, 101 course)i think it was blue showed me..(((goes like this.. if you right click on the link it will reveal a menu... click on ((view source )) and you can see how the thing worksnews in naples
*Nope, Mike, it had to be Joe. Joe is the leading internet wiz as far as I am concerned. If anyone thinks they know more, I'd like to see them go heads up with him.blue
*sonny .. that's the same jungle RI was until reform..and the two things that did it were finally getting the leadership and rank and file on RI Builders to at least split on the issue.. so that removed that opposition..the second was changing the law so ALL employees had to be covered...Sole Props with NO employees were the only exception,and even that is abused... awful lot of Sole Props with # Independent Contractors working 40 hours a week , 52 weeks a year for them...but it's a dangerous game they play...and they'll be the first ones sued the first guy gets injured..
*Once upon a time I once heard something about using "Hold Harmless Agreements" in lieu of workers' compensation coverage for really small companies. Does anybody know what exactly that is all about and does anybody have a good explanation of what a "Hold Harmless Agreement" really is and means?
*bonny's got the right idea also. We've been using the leasing system for about 4 years now and it's great. It cuts your AC, they take care of all tax deposits and AS, what's not to like? We do biweekly, but even if it was weekly, it still wouldn't cost much.
*So Craig and Sonny I've recently been looking into using a PEO (Professional Employer Organization) so that I can be competive in hiring labor in that I think it's the only way a small business like myself can offer benefits such as Health Insurance and still remain competitive. I'm wondering what do you all think are the pro and cons of using a PEO and how did you go about finding an organization and then selecting one?
*RI just amended the law closing the loophole for Independent Contractors..now every IC must register with the state as an Independent Contractor.. and register all companies that they work for..so.. if an IC registers and only lists one company.. guess who gets a call from the Dept. of Labor ...asking why they don't have WC?our WC audit this year took about 15 minutes....i gave her a printout of our payroll.. we reviewed the classifications of each worker (including me).... gave her a printout from Quickbooks Pro of all our vendors.. went thru the list of which ones were SUBS.. she cross-referenced my Certificates of Insurance.. and came up with 6 who had not given me Certificates... maybe another $20,000 in potential payroll..about 10 phone-calls later .. and two days .. i had everyone of the certificates in hand (faxed and mailed)..and a lot of these were from companies that never used to carry WC..now... with this new Independent Contractor registration.. it will be closer to 100% of the workforce in RI being covered by WC and GL...this is an amazing turn-around for a state where all the insurers pulled out in '89...between GL & WC.. my payroll costs are up about 12%.. but the bottom line...our backside .. and the workers families are all proteccted..sounds like a win-win to me......
*Mike...Are you sure you don't work for a big insurance company?....In my area there are so many firemen and all doing construction on the side that it won't be in my lifetime that we are at RI's level of coverage....I do like the idea as you...but....near the stream,aj
*aj.... you don't compete against firemen et al...if you do.. you lose.....Merry Christmas....you old humbug....
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I just completed my first Workers Compensation audit, curtisy of my carrier. I have been hit with a bill for just over $8,000 for paying sub contractors who did not carry their own policy.
The surprise is due to the fact that, as explained to me by the agent who sold me the policy, in Tennessee subs can elect to waive I/I coverage by signing a Form I-18.
I accepted these forms from several subs (and crews) who elected to waive coverage in lieu of me backing money from invoices.
When the auditor arrived, he informed me that employees to my sub contractors can not waive coverage.
I agree that all employees should have coverage, but this lesson is very expensive.
My question is: Do I have any chance of getting out of this bill? And, I use many of the same uninsured subs as other GCs--how do they avoid this?
Also---before I get a verbal assault online---I do not have any employees that I pay as "sub contract" help to avoid taxes and the like.