WORKERS COMPENSATION AND EMPLOYERS LIABILITY (Ed. 4/16) UF-5215
IMPORTANT NOTICE: DO YOU USE SUBCONTRACTORS?
If you use subcontractors in your business, please read the following notice:
It is important to have and maintain Certificates of Insurance for all subcontractors. This will verify that each subcontractor is adequately insured and may protect your business from costly losses. In many cases, subcontractors who do not have adequate workers’ compensation insurance become the responsibility of the business who hired them. Uninsured subcontractors who are required to maintain insurance by law or employ individuals who may become your responsibility with respect to providing workers compensation benefits, present an unacceptable exposure to your business and may impact your future insurability with ERIE.
When ERIE issues your workers’ compensation policy, the premium is based on the estimated payroll of your employees. When your policy term expires, ERIE may audit your payroll and the payroll of subcontractors that you used during the policy term. The audit will ensure that you pay the appropriate premium for your exposure. As part of the audit process, we will ask you for copies of the Certificate of Insurance for each subcontractor that covers the time period the subcontractor performed work for you. Therefore, you may be required to provide more than one Certificate of Insurance for the same subcontractor. If you do not have the certificate, or cannot produce the certificates at the time of the audit, the subcontractor will be considered uninsured. Labor costs for that subcontractor may be added to the audited payroll of your policy and a premium charge may be made according to the applicable workers’ compensation rules for uninsured subcontractors in the states where you operate.
Erie Insurance will not accept Independent Contractor Statements to exclude the payroll of a sole proprietor or partner (who does not have employees) from your audit. ERIE will not charge a premium if one of the following conditions is satisfied:
1. The subcontractor obtains a workers’ compensation policy and you keep a copy of the Certificate of Insurance on file; or1. The subcontractor obtains a workers’ compensation policy and you keep a copy of the Certificate of Insurance on file; or
2. ERIE and the auditor confirm that the sole proprietor or partner is an independent contractor and not an employee. Factors that are considered in determining whether an individual is an independent contractor or an employee include:
a. who controlled the manner and performance of the work;
b. method of payment;
c. freedom to hire helpers and schedule work hours;
d. freedom to offer service to others; and
e. who furnish tools and equipment.
If the individual is an independent contractor, then the payroll attributable to the individual will be excluded from the audit. However, if an employee/employer relationship exists, the amount paid to the individual will be included on the audit, and you will be charged premium for the exposure. Factors used as a reference in determining whether a worker is an independent contractor or an employee are also detailed on the IRS Web site at www.irs.gov at Publication 1779, “Independent Contractor or Employee” and under IRS Summertime Tax Tip 2010-20.
Effective February 10, 2011, ACT 72, the Construction Workplace Misclassification Act, established criteria that employers must follow in determining whether an individual is an independent contractor in the construction industry for workers’ compensation purposes as follows:
You and the individual must have a written contract to perform the services;
The individual must be free from control or direction over performance of the services; and
The individual must be customarily engaged in an independently established trade, occupation, profession, or business, which includes maintaining liability insurance during the term of the contract of at least $50,000.
When Erie audits your worker’s compensation policy, if the workers/subcontractors you hire to perform services do not have a workers’ compensation policy and an appropriate Certificate of Insurance, the auditor will request copies of the contracts between you and the individuals you hire to perform services on your behalf, perform the direction and control test, and request copies of the certificates of insurance showing liability insurance. A contract must be established for each policy year between you and the individual. The contract should be sufficient to cover all of the jobs the individual performs for you during the a p p l i c a b l e policy year. If any of these criteria are not met, the individual will be considered an employee and a premium charge will be made for the audited exposure under your workers’ compensation policy. For additional information, please visit the Pennsylvania Department of Labor and Industry website at www.legis.state.pa.us/.
If you have any questions regarding this notice, please contact your ERIE agent. Thank you for your business.