# INSURANCE! Mad & scared, your help is needed.



## ncurls (May 14, 2007)

We own a small residential framing company. I've been doing this for 15 years for someone else, and in June of last year went out on my own. We're doing this in Colorado, (Boulder/Denver area). I've never had any claims (thank god) and have been profitable enough to double my income and afford a down payment on a moderate house for the two of us.

As is standard here in Colorado, most of my guys are subs. They are independent contractors that come and go as the work comes and goes. Some of these guys make as little as $15/hr, and through last year, their general liability insurance was around $750 annually.

Well, I have a huge job coming up in just a few days and have hired a few extra hands. I sent them to our regular insurance guy only to discover that the general liability insurance for these $15/hr guys just went up to FOUR THOUSAND DOLLARS, which they obviously can't afford. I don't even pay that much (but uhem, the contract with my insurance company is up in 2 months!!) With some scrambling and my help, we found another company willing to insure them at $1600, and then today the insurance company said - oops, wait, just kidding. Here's your $1600 back, we aren't insuring you.

I am at a complete loss. I have literally no idea what to do. This will put me out of business. I can't pay my guys more than that, or I can't be competitive. I could hire them, but then my: a) insurance costs skyrocket, b) have to pay workmans comp which was quoted to me at $.18 on the DOLLAR in wages, and c)have to pay employment taxes. All of this makes it so I can't be competitive anymore. And puts me out of business by Monday.

Do any of you guys work in Colorado? How much do you pay in insurance? What companies (brokers and insurance direct) would you recommend I talk with? How do you handle this expense and stay competitive? Are you facing the same dillema?

If I'm not alone, we all should be RAVING ANGRY. This is going to put all of us little guys out business. Only big huge companies can survive the shuffle while the market corrects and construction expenses skyrocket. Then EVERYONE will go out of business b/c the homeowners won't be able to afford to build anymore. Even the wealthy ones.

Sorry for the rant, but I really need your help and advice.

Nick


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## Chris Johnson (Apr 19, 2007)

ncurls said:


> Well, I have a huge job coming up in just a few days and have hired a few extra hands. I sent them to our regular insurance guy only to discover that the general liability insurance for these $15/hr guys just went up to FOUR THOUSAND DOLLARS, which they obviously can't afford. I don't even pay that much (but uhem, the contract with my insurance company is up in 2 months!!) With some scrambling and my help, we found another company willing to insure them at $1600, and then today the insurance company said - oops, wait, just kidding. Here's your $1600 back, we aren't insuring you.
> 
> I am at a complete loss. I have literally no idea what to do. This will put me out of business. I can't pay my guys more than that, or I can't be competitive. I could hire them, but then my: a) insurance costs skyrocket, b) have to pay workmans comp which was quoted to me at $.18 on the DOLLAR in wages, and c)have to pay employment taxes. All of this makes it so I can't be competitive anymore. And puts me out of business by Monday.


 
Welcome to being a businessman...time to run your company like a company should be run.

Looking at what you were expecting as savings (by not buying proper insurance of workers comp. coverage) tells me why you were awarded the contract...you were the lowest bidder.

Suck it up pal...you will know better next time a big project comes around.


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## farmboy555 (Aug 13, 2006)

I don't have a answer for you, but you think $0.18 is high? Get in the timber & logging bus. like me. It's $1.00 on a $1.00.


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## Susan Betz (Feb 21, 2007)

18 cents on the dollar is not bad WC. $4000 a year doesn't equate to $4000 for a month or two. Taxes get paid whether it's out of your pocket or theirs.

Be a hardass and tell the workers that if they can't provide their own WC (or exemption), their own liability, and get 1099'd, then you'll hire them and figure those costs into the numbers. In other words, you'll hire them for $12 or $13 an hour. 

Real subs have their own insurance and pay their own taxes. Employees don't.


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## ncurls (May 14, 2007)

Chris,

I run one of the best jobs around. I am never the lowest bidder, and on this job especially. I am hired because my guys are fast and do extremely top quality work. We work exclusively on high-end custom homes and most of my business is repeat. AND I run my business to what the industry here in Colorado demands and to what is practiced, accepted, and actually TAUGHT by the HBA here as standard. So your comments aren't helpful at all. Thanks for the waste of air.

Susan, I am seriously considering going down that path, although like I said earlier, it will most likely put me out of business. There are lots of guys and subs running around without insurance, so what ends up happening are guys like me that are trying to do things right end up competing with the rif-raf (we also have immigration challenges here, I am often bidding and losing against non-legal crews willing to work for 1/2 of what I'm paying my guys, and NONE of them have insurance). How do you lift yourself out of competing with that?

Nick


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## WarnerConstInc. (Jan 30, 2008)

Thats life buddy, not trying to be rude that is just how it goes.


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## silvertree (Jul 22, 2007)

Here (MN) we pay comp, we get audited. There are the people who follow the rules, and the ones that don't. It sounds like you've been lucky so far.
All states are different, but one thing is pretty clear, the old "these guys are my subs" way of hiring is pretty much over. Might be OK where you live, but I can't do that in Minnesota. I have to get bids from my subs, not pay them by the hour. We can fudge that a little, I mean a little. Good luck!


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## thom (Nov 3, 2006)

A bit humorous. You calling your competition rif raff while others are calling you the rif raff.

It sounds to me like you are cheating. It sounds like you pay guys as though they were subs even though they fit the legal description (IRS) of employees. It really doesn't matter whether they work for you steady or not, what matters is control and responsibility. If you have a couple guys working for you framing and you are paying them individually hourly, they are employees. That means you provide workmens compensation and liability insurance. That's the law, it's what responsible contractors do. 

Several years ago I got fed up with the paperwork and went strictly subs. These are real subs, they carry workmens compensation on their employees, they cover their business with liability insurance. 

Likely what's happening is that the insurance companies see that you are cheating and want no involvement.


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## finehomes (Feb 4, 2007)

I'd have to agree with the above. Your insurance company is dropping you because they see you as a risk because you are cheating. If you are paying these guys hourly wages...they are NOT subcontractors. They are employees and they need to have workmans comp, you need to be paying taxes and doing proper withholding on them, etc. I'm suprised the insurance company hasn't outright just cancelled you. If you were here in Utah....you'd have been busted by the state and fined as they are cracking down on that big time right now!!!! Sounds like its time to buck up and run the business the right way!!!!


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## Chris Johnson (Apr 19, 2007)

I guess I wasn't a waste of air...just honest


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## Kgmz (Feb 9, 2007)

Just did a quick read of the State of Colorado's, Colorado Workforce website.

Your laws are basically the same as ours, the states of Oregon and Washington.

Now from what I read your guys are not independent contractors, and I will bet they do not pay their own Workmens Compensation Insurance. Because at the wages you are paying, they really could not to afford to after having to pay for their own liability insurance. And if they really don't have their own WC insurance and you are not paying it, that would scare the hell out of me. Why, because if one of them was seriously injured where they could not work the rest of their life. You would lose in court with this independent contractor crap, and would have to pay them for the rest of your life. Does not sound like fun, and definitely not worth the risk of a few dollars saved now.



Now about your liability insurance.
First you should got to this website link below and type "construction liability" in the search box. This will bring up a few hundred articles from insurance business trade magazines, etc.

http://www.insurancejournal.com

A excerpt from one of the many articles at the Insurance Journal website:

*Industry experts agreed that carriers are becoming tougher in their underwriting practices, scrutinizing on all levels before taking on large residential general contractors risks. *
*"Some companies want to write contractors involved in residential, but do no more than 25 percent to 30 percent general construction," Norman said. "They want the residential contractor who does at least 60 percent to 75 percent of their own work." Norman said that companies are more likely to write for a large general contractor if he or she does not "sub out" a lot of his or her work. "The more work that they do themselves, the better the opportunity of placing the coverage," he said.*




As for your WC rate of 18¢ that is cheap. Our rates are based on a hourly rate, and you pay the same if it is a $10 a hour laborer or a $30 a hour lead. For wood frame building construction we pay $2.69 a hour, for excavation, road building, land clearing we pay $2.23 a hour, for sewer and septic construction we pay $1.69 a hour, for roof work construction and repair we pay $4.87 a hour.


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## finehomes (Feb 4, 2007)

Just to give an idea here. I have NO Employees....and my general liability insurance is almost $1,400 a month!!!! I can only imagine what it would be if I had a few employees and had to be paying workmans comp too.


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## Since 1977 (Jun 4, 2008)

I see the sub title said "mad and scared" or something like it
The mad....cuz your buisiness is probably going to change to the way it should be ....and scared cuz the type of poker or in your case 'price of poker is going UP'
Maybe scared also as you see the swiftness an insurance company can cut off your plan.
Still not a swift as an employee who gets amnesia about 'just how is this supposed to work" when hurt.
Good thing is wasn't a state agency or what puttin 2 and 2 together......
Perhaps the insurance agent you called up suddenly with two referals for new-to-be-insureds figured what you were doing . I would be pulling the plug on the plan too. 
We all battle the non insureds in the bidding arena....I can remember when we still did roofing here in Pa. the rate then was so bad I paid more in insurance per month than my house,truck and 2 kids in daycare!

Good Luck ......You'll re-configure,commit to some good employees and do bidness a new way!

I've seen alot
Since 1977


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## tinner666 (Nov 3, 2004)

Don't feel bad. Many of us have had that same reality check as we moved up into owning our own businesses. You'll adapt. 
Put your employes on the payroll before the IRS catches up and you learn what 'expensive' really means.

You currently owe all their state and federal tax liabilities. Comp too, I think.
(Same for state.)


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## MarkNoV (Apr 29, 2006)

> I guess I wasn't a waste of air...just honest


:thumbup::clap::thumbup::clap::thumbup::clap::

Mark


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## DavidC (Feb 16, 2008)

ncurls said:


> Chris,
> 
> guys like me that are trying to do things right end up competing with the rif-raf
> 
> Nick


If you are trying to dodge your responsibilities as an employer than you are the riff-raff. But you can change as many before you have. You can get a lot of help in making the switch from a forum like this. 

Good Luck
Dave


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## Trimcat (Jun 8, 2007)

Where I wish the insurance company's would crack down is on the GC's who hire the one legal Mexican guy who somehow has insurance and speaks OK English and has an ARMY of uninsured illegals working for him. Here in TN, they have taken over new construction in exactly that manner. They have driven the money down to the point where it is not profitable to do business for guys who "want to do it right". Why does everybody turn their back on this problem? On top of that, for the most part they do HORRENDOUS work, and nobody seems to care. For me, I think I'm going to shift back into remodeling existing homes for people who don't want a bunch of non English speaking people running around their house pissing and sh*tting on the floor...... yes I have seen that MANY MANY times in new construction. The last job we were on had two tubs installed, and both had piles of sh*t in them when we arrived to trim the house. And seeing my crew is literally the ONLY white guys on the entire project, it's finally safe to point the finger without being called a racist. This country is going down the tubes folks. And we're sitting around watching TV and eating popcorn while it does. Time to wake up! They are coming to invade your town next I promise you.

Sorry to go off subject a little, but here in TN, it's the main reason for problems such as the OP lays out. You're forced down to their level if you want to compete as a sub. So you start doing things like the OP has done to try to stay afloat.


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## Any Season (Nov 19, 2007)

Wow. That was a beating. But I agree with everyone on here. That aside, here is what I would do...

Get a leasing company, and hire employees instead of subs. The insurance companies and the IRS realize that for many years employees under the ruse of 'subs' was a great source of profit and they are trying to correct that. There is nothing wrong with something of a loophole but when its no longer there you have to adapt.

I took Sue Betz's advice a while back and sent all of my guys through a leasing company. It took a few weeks to get in the swing of it, but to be honest, I have no worries, my comp is always current and I never have to deal with the insurance companies because of the insulation the leasing co. serves as. Sure my per/week costs are a little higher but I don't panic when I get a $2-4000 bill for comp (bc I don't get them anymore). Also, it has forced me to manage my cash flow and accounting alot better and that has made all aspects of my business flow smoother.

You are where you are right now. What are you going to do about it is the question. Seems to be a good impasse for change in your biz.


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## Mike Finley (Apr 28, 2004)

Thank you so much for all the great responses to somebody blaming "the system" for making them break every rule in the book and looking for sympathy. I can't tell you how sick it makes me feel to read stuff like that when I work in the same state, do everything by the book and am very profitable.

Great, great responses. :notworthy


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## Any Season (Nov 19, 2007)

That wasn't my point Mike


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## nap (Jan 27, 2008)

I'm glad to see so many guys getting the hint that you do NOT have a choice about making an employee an IC if they fit the bill as an employee. The IRS has a form (SS-8) you can file if you have any doubts as to what they should be. There is also a webpage that will help you understand and determine what they actually are.

irs q and a on Employee v. IC

another thing you folks need to understand is; just because you have hired a sub does not neccessarily mean you have no liability for workmans comp to the IC or liabilities caused by the actions of the IC's. The jury is out on the workmans comp situation and a GC has had to pay the WC claim for a sub before. It is a cloudy situation. As well, any negligence on your part may still makes you liable for injuries or other damages to the IC's or any other party on a jobsite.

If you have not spoken with an attorney concerning your possible liabilities, it is time to do so. Money spent now could save your business later.

and at $15/hour, I can assure you these guys have no idea what an IC is and how they should be classified. Since an IC has to include wages, taxes, insurance (WC and general liability, costs (truck, tools, gas, vehicle insurance, office costs, etc), they are not doing it on $15/hour. If you have an IC you are paying a lot less then the going rate for that type of man if you would call up another GC and ask how much for an hourly service call, you are screwing the guy and actually considering him incorrectly. The IC is in business for himself and if he is not charging and getting paid for all of the same items you have to pay for your business, there is something wrong with the picture.

If you control the hourly pay, these arre NOT IC's. Period. An IC has the right to tell you what you have to pay them for them to do the work for you. If they are working for you exclusively and you do not allow them to do the same work for another company, they are not IC's. If you tell them when to work (setting their work hours), they are not IC's.


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## Virg (Mar 18, 2008)

pretty funny i saw this post today. i just met with someone from a payroll company today and signed papers to have my latest hires on payroll. i thought about doing the 1099 thing and just writing checks but it just seemed wrong. apparently it woulda been way wrong and im glad i took the payroll route. they actually take out my workers comp biweekly so i wont get hit quarterly. after reading these posts im really glad i did. who is very fast and does top quality work for $15 and hour anyway?


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## Chris Johnson (Apr 19, 2007)

Virg said:


> who is very fast and does top quality work for $15 and hour anyway?


 
Apparantly Independent Contractors who buy their own insurance


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## K2 (Jul 8, 2005)

I find it interesting that the national handy franchises do this subcontractor thing and get away with it in all 50 states. I like how they call their people "craftsman" because they don't want to call them employees or subcontractors. The craftsman write their estimates and bills on franchise letterhead. Sounds like employees to me... Also we've had thousands of independent contractor programers working in this town for MCI and now Verizon. These independent contractors show up to the same building every day at 8 am, sit at the same desk, use all the company equiptment and letterheads but they get paid hourly as subcontractors and 1099'd. I think the jury is still out on this subject especially if your lawyers are better than the IRS lawyers. I'm certain some cases have been run through the courts and it seems a few cases of serious injuries with no wc would have brought changes but as i see it it it just continues and is supported by some big hitters like the HBA. etc.

Oh and Colorado wc for framers in 1991 was 36% so it's been comming down. One of the scams back then was to call every framer a superintendent because the rate on a super was 6%. 

This county has been doing about 6000 new homes per year for the last 15 years and I would say that the sub scam has been the norm.


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## ncurls (May 14, 2007)

I think the hard part about this is that I TRIED to do it the right way. When I went out on my own, I was encouraged to do so by most of the GCs that I've been working with. I went and talked to lots of people about the way to set it up - contractor vs employee, how to stay competitive, how to hire, how to conduct. I spoke with lots of people at the HBA. I probably talked to 10 guys that have been in the business here for 30 years and followed their advice closely. I know the stakes, and I didn't want to increase risk for ANYONE. It's a lose-lose.

So, in listening to what you guys say, I'm learning a very good lesson here. The fact of the matter is that here, in Colorado, in the high end home market of all places, I will not be able to compete if I bring on my guys as employees. A $15/hr guy will cost me his probably $23/hr, which puts me out of the game...in the framing market anyway. 

I can't even IMAGINE what the production framers are doing. I am usually at the upper end of the bidding pool already and the only reason I get the work is b/c of my reputation. The GC's are always driving down price (b/c their clients are driving down price). And I'm NOT turning a huge profit, maybe b/c I don't run a whole bunch of projects simultaneously.

The only way in colorado this problem fixes itself is if all the subs (like me, framing sub) got together and agreed to do things right.

I think my only real option is to find another line of work.


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## K2 (Jul 8, 2005)

> The only way in colorado this problem fixes itself is if all the subs (like me, framing sub) got together and agreed to do things right.





> Got together


 We had that once and a bunch of guys fought and died for the right of labor to "get together". We threw it away. Didn't need it anymore. Everything was fine without it. ... Framing subs sticking together?? won't happen.


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## neolitic (Apr 20, 2006)

K2 said:


> We had that once and a bunch of guys fought and died for the right of labor to "get together". We threw it away. Didn't need it anymore. Everything was fine without it. ... Framing subs sticking together?? won't happen.


:notworthy I've just found a new level
of respect for you. :notworthy


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## Double-A (Jul 3, 2006)

Curls, you're taking a rather myopic view of this. Have you spoken to your insurance man about all of your options? Have you run the numbers to see what happens if you take these guys on as full time employees with a company safety program, mandatory safety meetings, annual ongoing training in safety and technique, etc? This is why the insurance company wants to see more of the work performed 'in-house'. The can offer incentives and price breaks for you investing in a company required "Safe job site".

I'm sorry to tell you but this is where the rubber meets the road in the business world. Its not seeing a problem as "I have to make a small change or go out of business", but rather as seeing it as "Can I make a big change and make this situation better with enough planning and research". Look into leasing your workers. Looking into hiring your workers. Make your insurance man get off his ass and find you some decent insurance that you and or your workers can afford.

Dig into the problem and don't throw whiny arguments around. Go to your GCs and talk to them about your problem. Talk to the insurance company's policy underwriter about the problem too. If his company covers the GC, they might find their rates going up as well.

This is an opportunity for your to decide if you really are ready to take on the headaches of being in business and demanding service for your dollar from your suppliers, including your insurance agent and carrier.


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## finehomes (Feb 4, 2007)

Employee leasing is getting harder and harder to find....at least here in utah. I tried to find a local place here for my one high school age part time helper and no one does it anymore.....too much liability I was being told.

But...I have a hard time swallowing the $15/hr to $23/hr jump just getting guys set up right. I had a whole crew of framers a couple years ago before I relocated my company to a new part of utah and my lead guy made $15/hr and it averaged about $18+/hr for full payroll with workmans comp on him. They won't get as much take home anymore because of withholdings....but that is THEIR problem....not yours. If they go work for any other reputable company....its going to be the same way and in this economy....I don't see a whole bunch of people hiring framers right now....so they should be thanking you for getting workmans comp on them and getting their tax situation taken care of....and keeping their jobs.


Sam


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## poolcageman (Dec 10, 2007)

Welcome to the Majors Kid!


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## K2 (Jul 8, 2005)

neolitic said:


> :notworthy I've just found a new level
> of respect for you. :notworthy


Well thanks Neo, I'll try to maintain .

Regarding the OP. I would not pay any attention to legal council found on this forum. The sub scam thing has been going on for a long time and I doubt you could get 3 out of 20 tax attorneys to agree on the subject or 3 out of 6 IRS attorneys to agree. Hell were not even sure the IRS is legit never mind the rules they make. I'm sure that on Monday morning there will be more than one court room discussing this very subject... It must not be too illegal because there is alot of it around here.


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## 1stchoice (Aug 12, 2007)

Interesting discussion. I agree with any season, I was originaly told that
I would need to come up with a big down pmnt for work comp and after doing the numbers I realized that at this point it would be more efficient to go thru the lease companies- all insurance paid+ all work comp paid= 
everyones happy, sure it costs more in hourly pay than I would have started paying employees but at least I am trying to start off legit and have all the required coverages in place as the business grows and becomes profitable than I will reevaluate my costs at that time and see what will be more cost effective.
I spoke with a local contractor here and he did the same as well, sent all his employees thru the leasing agency, hired them thru the agency and said that his savings in work comp alone was well worth his effort.


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## DavidC (Feb 16, 2008)

I also used a leasing agent for a number of years. It is more expensive that way, but it's not prohibitive. Especially when you weigh it against the pay as you go compared to hefty down payments.

The first one that I used was run by a charity group that hired out day labor and temps to help find work for people in need. They hired my guys and leased them back to me. Plus I had a source for day labor to do demo work and such. Everybody was covered legally and insured properly.

Nowadays we have our accountant handle all the paperwork. We buy the insurances, call in the hours by Wed., pick up the payroll checks on Fri. They handle the deductions and quarterly/annual reports. Our cost is $25 per week for up to 4 employees. Additional employees are $1.50/wk. extra. The cost includes our business and personal tax returns at income tax time.

If you can't sell your work for enough to cover the cost of legitamate business than you should find another route or a job. I have always preferred working in new construction for example. We are now almost exclusively in residential remodeling because there we sell our services with built in value as opposed to putting in a bid and hoping we are low enough to get the work. Years ago we did roofing and siding sub contracts in new construction. I could make a decent living suppying labor @ $14/sq. on a new roof. The day I was told that I would have to work for less because a new crew showed up for $10/sq. and brought their own nails was when I started the switch.

Good Luck
Dave


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