Workers' Compensation Rules Shift for Business

This is a cautionary tale for business contractors and their sub-contractors. In 2002, the Massachusetts Workers’ Compensation laws changed, creating new challenges and not a few administrative headaches.

BEFORE THE CHANGE – Sub-contractors or independent contractors that operated as sole proprietors, partners or managing members of LLCs were not included in the state’s Workers’ Compensation policy, although they were required to carry Workers’ Compensation insurance for their employees.

AFTER THE CHANGE – Sole proprietors, partners, and managing members had the option to be covered by their own policy, meaning they could “elect in” for coverage under their policy or they could take no action and remain “out” of their policy.

RECENT CHANGES – In 2007, the Workers’ Compensation Rating and Inspection Bureau issued new audit guidelines “in an effort to provide consistent application of the Independent Contractor Law, consistent treatment of Certificates of Insurance and consistent collection of premium at audit.”

THE PROBLEM - The new guidelines force auditors to take a much stricter interpretation of state law on the question of “Who is an Independent Contractor?” vs. “Who is an Employee?” when looking at the relationship between the general contractor and the sub- or independent contractor.

GENERAL CONTRACTORS BEWARE - Certificates of insurance provided to a general contractor (GC) are now required to indicate whether a sub-contractor who is a sole proprietor, partner or managing member of an LLC has elected “in” or has remained “out” of their Workers’ Compensation policy.

For sub-contractors who have elected “in,” no additional payroll is picked up on the GC’s policy, and no premium is charged; however, sub-contractors who have remained “out” are now considered “uninsured,” and all payments made by the GC to the sole proprietor, partner, and/or LLC will be picked up as payroll on the GC’s policy, and the appropriate Worker’s Compensation premium will be charged to the GC.

SUB-CONTRACTORS TAKE NOTE - Most general contractors are now requiring their subs to “elect in” on their own Workers’ Compensation policies rather than paying an additional premium following their audits for using “uninsured” sub-contractors.

It’s a complex issue so if you have questions, please contact David Crawford or Alan Long at Eldredge & Lumpkin. Call 800 945-1840 or e-mail:

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