The Importance of Verifying Workers’ Compensation Insurance When Hiring Independent Contractors

In an increasingly decentralized work landscape, hiring independent contractors has become a commonplace strategy for businesses to obtain specialized services without incurring the overheads associated with full-time employment. However, as the workforce landscape shifts, businesses must also adapt their practices to safeguard both their interests and those of the contractors they hire. One crucial aspect of this is verifying proof of Workers’ Compensation Insurance when engaging with independent contractors. Here’s some reasons why:

  1. Mitigating Liability: If an independent contractor is injured on the job and lacks proper Workers’ Compensation coverage, the hiring company could potentially be held liable for medical expenses, lost wages, and other damages. The hiring companies Workers Compensation might also be responsible increasing future premiums or worse.  Ensuring that contractors have valid insurance can shield businesses from unexpected financial burdens.
  2. Reputation Management: Beyond the immediate financial ramifications, companies risk reputational damage if it’s discovered they hired contractors without the proper protections in place. Demonstrating due diligence by checking for Workers’ Compensation insurance is a clear indicator of a responsible and ethical business approach.
  3. Ensuring Compliance with Laws and Regulations: In some jurisdictions, businesses are legally obligated to ensure that any contractors they hire have appropriate Workers’ Compensation coverage. Even if it’s not mandatory, staying ahead of potential legislative changes by adopting this practice early on can be beneficial.
  4. Smooth Project Execution: If an independent contractor is injured and lacks insurance, project timelines might be affected due to delays or disruptions. Ensuring that all contractors have valid insurance coverage helps guarantee smoother project execution with fewer potential interruptions.
  5. Building Trust and Professional Relationships: When businesses take the step to verify insurance coverage, it sends a message to contractors that they value a professional and thorough approach. This can foster a positive working environment and cultivate long-term, trust-based professional relationships.
  6. Attracting Top Talent: Top-tier professionals often ensure they’re covered by Workers’ Compensation insurance. By emphasizing the importance of this insurance, businesses can align themselves with high-caliber independent contractors who prioritize responsibility and professionalism.
  7. Financial Predictability: Unexpected claims or legal battles can lead to unforeseen costs. By verifying insurance coverage upfront, businesses can maintain greater financial predictability and stability.

In conclusion, as the lines between traditional employment and independent contracting continue to blur, businesses must adapt their practices to reflect the changing times. Verifying Workers’ Compensation insurance is a simple yet critical step in this direction. It safeguards businesses from potential liabilities, showcases a commitment to ethical hiring practices, and ensures smoother collaborations with independent professionals. In the evolving world of work, such diligence is not just commendable—it’s essential.

Back Strain Example

An Owner/Operator hires a carpenter to perform light trim work.  While on a ladder, the carpenter spots a bee’s nest and is startled and falls, severely injuring himself.  The claim, which totaled in excess of $300,000, is then filed with the Owner’s insurance carrier, and not with the carpenter’s business insurance carrier.  The Owner is then shocked to find out that not only is he responsible for the medical bills and lost wages, but their insurance company also asks for back premium for the carpenter – even though he is not employed by the owner, but just hired for that one job.  Why is this?

When hiring contractors to perform work on your building or property, it is your responsibility to verify that they have adequate insurance.  If they do not have full insurance coverage, then any injuries or damage to property will be your responsibility.  What is worse is, should their work injure one of your customers, such as through a trip and fall, or damage a customer’s vehicle, you will be responsible for your customer’s damages as well.  So how does an owner protect their business and profits?

When screening a subcontractor, one must think of what can happen to them while they are on your property, what they can do, and also even off property, if they are still working for you.  This means that it must be verified that they have Workers’ Compensation Insurance, General Liability Insurance, and Commercial Auto Insurance.  Again, think if they have a motor vehicle accident on your property, or driving to the hardware store for additional materials, or if they strike a patron, the Owner could be held liable for the damage to their vehicle, the customer’s vehicle, or the injury to the customer.

Keep in mind that insurance can be costly, and as such, fraud is prevalent and there are many fake certificates of insurance in circulation.  When a subcontractor produces a certificate of insurance, this certificate should be verified with their insurance company, or the insurance company agent listed on the certificate.

Once you have verified that the insurance is valid, then a file should be created so these subcontractors can be tracked throughout the year.  At the end of the year, the process needs to be repeated to ensure that the subcontractor continues to be insured.  Work should not be contracted until an updated certificate can be produced.

The process may seem involved for a landscaper or sidewalk repair job, but we all know of the high costs of a single slip and fall, as well as the damage to your reputation and profits should something like this occurs.  Knowing who your subcontractors are, being aware of their work, and verifying that they have proper insurance helps to protect you, your customers, and your business.