# Workers Comp. Is this legal?



## Spencer (Jul 6, 2005)

I do not have workers comp. from the General Contractor I work for now. All of his empoyees (3 total) are classified as independent contractors. In reality we are his employees. We work 40-50 hours a week for him and don't do work on the side. We get paid $?.?? per hour.

Is this legal?

Also, the area where I live has a ridiculous amount of amish and half of them think they have to be carpenters. Is it legal for a General Contractor not cover them but cover other employees due to the fact that amish do not have insurance anyway?:thumbup:


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## Greg Di (Mar 12, 2005)

Spencer said:


> I do not have workers comp. from the General Contractor I work for now. All of his empoyees (3 total) are classified as independent contractors. In reality we are his employees. We work 40-50 hours a week for him and don't do work on the side. We get paid $?.?? per hour.
> 
> Is this legal?


*NO. You would each need your own GL insurance policies.*



Spencer said:


> Also, the area where I live has a ridiculous amount of amish and half of them think they have to be carpenters. Is it legal for a General Contractor not cover them but cover other employees due to the fact that amish do not have insurance anyway?:thumbup:


*I can't imagine Amish being excluded from coverage even though they don't use doctors and such. That would be like me saying to the state of NJ that I don't have to cover employee X because he's Guatemalen and they don't believe in our healthcare system. The state is going to require WC coverage regardless of the employee's religion or belief system.*


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## PipeGuy (Oct 8, 2004)

Spencer said:


> I do not have workers comp. from the General Contractor I work for now...Is this legal?


W/C requirements vary by State. That being said, I think it highly unlikely that what the GC is doing complies with W/C regulations. Provided he's also not withholding payroll taxes, it certainly doesn't jive with IRS guidelines.

I'd think that statutory W/C insurance applies without regard to creed or the personal preference of the employee; thus the term 'statutory'.


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## Spencer (Jul 6, 2005)

> I can't imagine Amish being excluded from coverage even though they don't use doctors and such. That would be like me saying to the state of NJ that I don't have to cover employee X because he's Guatemalen and they don't believe in our healthcare system. The state is going to require WC coverage regardless of the employee's religion or belief system.


The reason I asked this is because there are tons of amish run construction businesses who don't carry workers comp for their employees in my area. I know there has to be some kind of loop hole that allows them to get around this. What really ticks me off is that because they don't have any insurance or give their employees any benefits they are always way under the bids of general contractors who do business by the book.


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## rikanit (Nov 28, 2005)

Could the Amish "exclusion" be based on an immediate family clause? I know I technically can exclude my brother and father if I so desired, but not my cousin or other employees.

As far as the GC not covering you I don't see how he legally can get away with it. Especially without the GL policies as mentioned above.


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## RYANINMICHIGAN (Dec 9, 2005)

In Michigan there are some basic questions you ask to see what you are. Do you work only for him or other GCs? Just him. Do you work with his tools or do you supply the tools? Does he define the hours in which you work or only the timing of the completion of the project? Sounds like you are working for him ilegally. he has to provide WC. (at least in michigan)


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## Grumpy (Oct 8, 2003)

Legal? No! Ethical? No!

In the state of IL if a person is an employee they must be covered under workmans compensation or he is breaking the law. In the United States if a person is an employee but classified as an independant/sub there is some gray area (Ryan in the post above mentioned a few of the IRS guide lines for determining if you are a sub or employee) but if you are really an employee your employer is breaking the law. 

I do not believe for a moment that the amish would be exempt from these laws.


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## Spencer (Jul 6, 2005)

I have another question.

If a GC hires a subcontractor who does not have workers comp. is the GC required to cover him? If so how?


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## kapena (Aug 20, 2004)

In Hawaii, the requirement for providing worker's comp coverage does not apply to a partnership when the only workers are the partners themselves. Even a one percent owner in an ordinary partnership can elect not to be covered. 
Limited liability partnerships (LLPs) are not so lucky. Even the majority owner has to be covered.


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## Grumpy (Oct 8, 2003)

Spencer said:


> I have another question.
> 
> If a GC hires a subcontractor who does not have workers comp. is the GC required to cover him? If so how?


Yes. When the GC has his workmans comp audit at the end of the year all of his monies paid out to subs without a WC, he will end up paying a WC on that monies. That's what insurance audits are for.

My WC coverage allows me to exempt all business owners (uo to 5). Some companies use this as a loop hole and put everyone on the policy as a co owner in the company.


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## Spencer (Jul 6, 2005)

What do you mean by workmans comp audit? Do all GC's have this at some point?

If this is the case I would never hire an amish crew as a sub because I would have to pay all that money in workmans comp when I was audited. How much money are we talking?

What would be the penalty if you did yet audited? Slap on the wrist or heavy fines?

I am going to ask around and see if I can figure out what this loop hole is for the amish. If i figure it out I will be sure to post it.


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## Grumpy (Oct 8, 2003)

Everyone who has workmans comp will have an audit. The audits are usually once a year, but I know guys who get it twice a year. Audits are sometimes done over the phone for companies with very low volume however I'd have to think a GC would have a physical audit where a insurance company rep comes to your's or your accountants office and reviews your books.

After your books have been reviewed they will adjust your premium. Sometimes they will give you money back since your premiums are based on guesses. If you've grown past those guesses, then you will owe them money.

In insurance audit is not an IRS audit. IRS audits are conducted if there are some red flags in your tax filings. Insurance audits are mandatory to determine how much money you owe the insurance company for coverage.

If your amish crew can provide you with a certificate of workmans compensation or (in some states) a certificate of exclusion then you will not have to pay their workmans compensation premiums. This means do your due diligence before you hire a crew and collect all their certificates and licenses. The best thing to do is to ask your insurance agent when you need to cover your a$$.


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## Spencer (Jul 6, 2005)

This probably isn't a very inteligent statement but here goes nothing. If you don't have workmans comp, a workmans comp insurance company will have no reason to come and audit you. Therefore, if a GC and his subs don't have workmans comp, the GC can't get in trouble unless someone gets hurt or something like that because no one would ever know otherwise.


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## skylands (Dec 10, 2005)

Hi Spencer.

First, it's business suicide to operate without WC. 

A worker who gets hurt would just turn the lawyers lose on you, your business, your house, car(s), the customer, his house, car(s), and any and all manufacturers connected with the injury. 

The lawyers know that the courts always side with injured. 

Second, it's shows great credibility to the public that your company carries the proper insurance. 

A guy in the area here fell off a ladder. He was told by the employer that he (the employer) had WC when in fact he didn't. The injured guy has now expanded the suit to include the ladder company, the landscaper for not properly compacting the soil and a fellow worker for wraping rags around the end of the ladder so the ladder wouldn't scratch the new paint job.


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## Grumpy (Oct 8, 2003)

You are right you will not be audited if you do not have WC. 

If you are bidding jobs against me and you don't have WC I can almost guarantee you will not get the job since I make our insurance a large part of our sales presentation. I inform the potential client what it is, how it protects THEM and what could happen if they hire someone who does not have it. 

As Skyland stated operating without WC is financial suicide. Also it's illegal if you have employees, regardless you think they are employees or not.

I am curious. First you stated you were an employee of a GC, as your questions progressed it is becoming confusing to determine if you are truly an employee or if you are the GC trying to find out ways to con. So which one is it? Are you an employee being exploited or are you looking to exploit your employees?


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## Dale (Aug 26, 2004)

How does your GC deal with payroll??..all cash? How does that work with 4 guys every week? Does he cut a fat check to himself every week, claim all the $$. from a project minus expenses as income to himself and then pay taxes on it? Does his GL insurance carrier audit his payroll?..ANY other workers on his projects require WC or carry their own liability insurance as subs..which have guidelines to determine if they are in fact subs or employees,etc.

I'd be worried if I were him..one pissed off employee makes 1 phone call and he's sunk.


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## Spencer (Jul 6, 2005)

> I am curious. First you stated you were an employee of a GC, as your questions progressed it is becoming confusing to determine if you are truly an employee or if you are the GC trying to find out ways to con. So which one is it? Are you an employee being exploited or are you looking to exploit your employees?


Grumpy, to answer your question I am not a GC. I actually just graduated high school and am hoping to get a construction business going in the next few years. I am an employee being exploited. I work for a GC who does not have workmans comp. According to him the way he does business it completely legal, according to everyone else it isn't. He has had all the other guys sign papers saying that if they get hurt on the job he is not liable. Thus far he hasn't asked me to sign one. I am definatelly his employee even though I am classified as a independent contractor on the taxes.

Part of the reason I work for this GC is because he wants to get out of the business. This opens up a window of opportunity for me. He has offered to give me all of his referals and help me out along the way of starting my own business. For the record he is a really good friend of mine and I enjoy working for him.

However, I get $13/hr with absolutelly no benefits and won't be getting a raise anytime soon. The only benefit I can think of is that I can get tax deductions on things I buy that I use for work.(tools, truck, etc.) Right now I am covered by my parents health insurance until I turn 19, which is in about a year.

So what do you think of the situation?


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## Spencer (Jul 6, 2005)

> How does your GC deal with payroll??..all cash? How does that work with 4 guys every week? Does he cut a fat check to himself every week, claim all the $$. from a project minus expenses as income to himself and then pay taxes on it? Does his GL insurance carrier audit his payroll?..ANY other workers on his projects require WC or carry their own liability insurance as subs..which have guidelines to determine if they are in fact subs or employees,etc.


Dale

As far as I know we are all classified as subs. We get a check and pay our own taxes. If he were every audited it would be odvious that the same 3 subs work for him 40-50 hrs a week. But I have no idea if he ever actually gets audited. I am pretty sure none of the other guys carry insurance on themselves.

What would be the penalty if he would get caught doing this? (having employees classified as subs and having no workmans comp on his subs and employees)


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## JMO (Sep 12, 2005)

Spencer said:


> I do not have workers comp. from the General Contractor I work for now. All of his empoyees (3 total) are classified as independent contractors. In reality we are his employees. We work 40-50 hours a week for him and don't do work on the side. We get paid $?.?? per hour.
> 
> Is this legal?


A company is not legally required to have WC coverage for subcontractors that work for them. ie, a GC hiring a HVAC sub. It sounds like your GC is using you as a subcontractor. Some WC policies cover volunteers and subcontractors as insureds, some dont. Most policies in our industry do not cover these types of workers without it being specifically requested. Most business owners are not insurance savvy enough to ask for such coverage, nor are most companies willing to offer it up. Are you filling out W-9's for him? I assume you are not on his actuall payroll. Every state is different when it comes to the max number of employees before WC is mandatory. In Geogia it's 3 or 5, (cannot remember as we have only 2 FTE's, the rest are subs).

As far as audits go, this is standard. General Liability (GL) and Work Comp (WC) policies are for the most part auditable. These premiums are rated on figures given to the ins co when the policy is written - payrol and/or revenue projections. Audits are nothing to be too concerned about - not like the irs, especially if your projections are somewhat accurate. For companies with revenues/payroll under $500K, it is usually done over the phone or through the mail. 

Now, the tricky part is with the WC. Most, if not all, WC policies require you to obtain certificates of insurance from all of your subcontractors, giving proof that they have WC coverage. Most agents fail to cover this with clients. If you don't, and your WC/GL policies provide coverage for subcontractors, they may hit you up at audit since their policy would respond to any accidents. Again, the audits for smaller companies are usually done over the phone, and they typically ask "did you obtain certificates of insurance from your subs?" We have yet to be asked to fax or mail a copy to them...

Bottom line Spencer is that he is more than likely within the legal guidelines... But this leaves you without coverage in an injury prone industry. Be sure you get at least some catastrophic health coverage for yourself, in case you get injured. Or, get a job with a company that provides WC coverage..


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## JMO (Sep 12, 2005)

Spencer said:


> Dale
> 
> As far as I know we are all classified as subs. We get a check and pay our own taxes. If he were every audited it would be odvious that the same 3 subs work for him 40-50 hrs a week. But I have no idea if he ever actually gets audited. I am pretty sure none of the other guys carry insurance on themselves.
> 
> What would be the penalty if he would get caught doing this? (having employees classified as subs and having no workmans comp on his subs and employees)


Sorry, didn't read this post before my other reply. In Georgia, if you pay any one single person more than $600/year, you are required to have them complete a W-9 for tax reporting purposes. Are you getting paid in cash or checks? Have you completed a W-9 for him. If so, the IRS will come looking for their share around tax time. Ouch, withholding your own taxes is tough. Need discipline in savings.... 

I'm not an attorney, and the line is fuzzy. Think of all the illegal immigrants out there working for construction companies... you know that their employers don't carry WC on them, or withhold taxes. It is, for the most part, a very loose cannon industry when it comes to WC, Taxes, labor laws, etc...

You must look out for yourself. If you are not comfortable with your employer.. get on with another company that looks out for its employees.


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