Workers compensation insurance is one of the most significant expenses for subcontractors, and one of the most misunderstood. Getting it right protects your employees, satisfies GC requirements, and keeps your business compliant with state law.
Who Needs Workers Comp?
Almost every state requires businesses with employees to carry workers compensation insurance. Some states exempt sole proprietors or businesses with fewer than a certain number of employees, but even if you're exempt, many GCs require proof of workers comp before they'll let you on the job site.
How Premiums Are Calculated
Your workers comp premium is based on three factors: your classification code (which reflects the risk level of your trade), your payroll (higher payroll means higher premiums), and your experience modification rate or EMR (which reflects your claims history).
Construction trades carry some of the highest classification rates because the work involves elevated risk. Electrical contractors, plumbers, and roofers all have different rates reflecting their specific risk profiles.
Reducing Your EMR
Your EMR is the factor that has the biggest impact on your premiums, and it's the one you have the most control over. An EMR below 1.0 means your claims history is better than average for your industry, resulting in lower premiums. An EMR above 1.0 means your claims history is worse than average.
To reduce your EMR, implement a rigorous safety program, provide regular safety training, investigate every incident to prevent recurrence, and return injured workers to modified duty as soon as medically appropriate.
Common Mistakes
Misclassifying workers as independent contractors when they should be employees is a serious violation that can result in fines, back premiums, and loss of coverage. Underreporting payroll might reduce your premiums temporarily, but audits will catch it and the penalties are severe.
Not carrying workers comp when required can result in fines, lawsuits, and being unable to work on projects that require proof of coverage. It's simply not worth the risk.
Using Technology to Manage Risk
Accurate time tracking helps ensure your payroll reports are correct, preventing audit surprises. Safety documentation tools help you maintain the training records and incident reports that support a lower EMR. Pre-qualification platforms let you showcase your safety record to GCs, making you more competitive for projects.
The Business Impact
A good safety record and low EMR don't just reduce your insurance costs. They make you more competitive. GCs increasingly evaluate subcontractors' safety records before awarding contracts. A low EMR signals that you run a professional, safety-conscious operation, which is exactly what GCs want on their projects.