General Contractors and Workers Compensation Liability
Sound risk management practices necessitate that general contractors contractually mandate workers’ compensation coverage anytime a subcontractor is hired. Subcontractors cannot hide behind statute in contract situations; workers’ compensation coverage can be contractually required regardless of statutory provisions. Forty-four states* and the District of Columbia statutorily regulate workers’ compensation benefits within the general contractor-subcontractor relationship. “Employees” (as defined earlier) of a subcontractor in these states must be provided workers compensation benefits if an injury occurs. Benefits will be paid either by the injured employee’s direct employer (the subcontractor) or the general contractor who hired the subcontractor. The general contractor is statutorily assigned the responsibility of providing workers’ compensation benefits to the uninsured subcontractor’s injured employee, regardless of the number of employees working for the subcontractor. Plus, any additional premium for these de jure employees will be charged to the general contractor, even if no loss occurs. Do not confuse a general contractor-subcontractor relationship with the relationship between a principal/owner and an independent contractor.- An “independent contractor” is an entity with whom a principal/owner directly contracts to perform a certain task or tasks. Independent contractors are generally engaged to perform operations not within the usual trade or business of the principal and such tasks are contract-specific. All work required of the contract is performed by the independent contractor and employees. Independent contractors are typically not considered employees of the principal.
- A “general contractor” is an entity with whom the principal/owner directly contracts to perform certain jobs. Some or all of the enumerated tasks are subsequently contracted to other entities (subcontractors) for performance. For general contractor relationships to exist there must be three parties: a principal, an independent contractor, and a subcontractor hired by the independent contractor. Independent contractor status changes to general contractor when any part of the work is subcontracted to another entity.