Monday, June 12, 2017


By Lewis E Melhan -July / Aug MoAgents magazine 2016 

A determination of who an employer is covering under the workers' compensation statutes has always been somewhat confusing, and the more complicated an organization becomes, the more the law may seem complicated. 

This is particularly true in the construction occupations, where many subcontractors may be involved in a project, which is the situation discussed in this article. For understanding what workers are the responsibility of a contractor employer, the most important provision in the law is Section 287.040, which governs what are generally called "statutory employees." A somewhat simplified explanation of the statute is that every person working on a project conducted by a general contractor is considered an employee of that general contractor, unless the person is an employee of a subcontractor which has covered the person for workers' compensation. As most readers here will know, the workers' compensation coverage of the subcontractor is evidenced by having the general contractor receive a certificate of insurance from the subcontractor showing the insurer providing the workers' compensation coverage for the subcontractor's employees. The workers' compensation carrier for the general contractor can then determine that the general contractor is not considered the employer for the employees of the subcontractor and won't have the payroll of those workers used as a consideration in the final premium audit for the general contractor. 
However, many problems occur with small subcontractors operating as sole proprietorships, partnerships or limited liability companies. 

One person sole proprietor subcontractors and partnerships with no employees exist fairly often in plumbing, electrical work, flooring installation and others. If those one person operations do not elect to buy workers' compensation, then that subcontractor proprietor or the partners are statutory employees of the general contractor and the general contractor should be prepared to pay workers' compensation premium for those subcontractors when the audit comes. The general contractor may want to use that information in considering how to appraise thebids of such a subcontractor for work, as the workers' compensation premium will be an additional cost not in that subcontractor's bid. 

A similar problem exists with small contractors that have employees when operated as a 
sole proprietorship, a partnership or a limited liability company, since in one way or another, the sole proprietor, the partners or the members of the limited liability company all can decide by written election whether to be covered by a workers' compensation policy or not. The certificate of insurance form has a check box to indicate whether these individuals are covered. If they have elected not to be covered and they work on a contracted job, then they are statutory employees of the general contractor, even if the employees of the subcontractor are not, and the auditing insurer of the general contractor can add those individuals to the payroll on audit. This is true even if the certificate isn't properly completed and exempted employees are not indicated on the certificate. 

Even though the agent may not be required to advise a general contractor specifically on the effect of this law, he may avoid future disharmony and potential litigation if the agent explains to their insured general contractor clients how the statutory employee provisions work and that the general contractor should actively review certificates of insurance as to the check boxes for sole proprietors, partners and members of limited liability companies. General contractors who do not practice this procedure may get a rude awakening when an audit is issued requiring premium for all those uncovered sole proprietors, partners and members of limited liability companies.