Get the Ebook Now. Everything you need to know about Insurance
If you’re a general contractor working on a project that requires a multitude of trades works to complete it to the client’s satisfaction, you’re naturally going to find yourself in a position where you’ll have to share builder’s risk via sub-contractors on a certificate of insurance. Sharing risk, if done incorrectly, can lead to potential disaster. But many general contractors end up getting blindsided by things they didn’t expect.
We can certainly help you sidestep the obscure troubles associated with builders’ risk sharing by providing you with a series of tips and tricks on the subject. So, without further ado…
1. If you are going to buy a “ghost” policy, also known as an “if any” policy, ensure that you are absolutely militant about getting certificates from the people you pay through a 1099 form.
Your insurance company will be asking you for payroll information concerning everyone you wrote a check to from your tax return three months after the policy period. This can accumulate massive expenses if you do not have their information because sometimes the audit charges on parts or equipment your sub-contractor has bought. You have very little rights at your disposal when you do not have a certificate from your sub-contractor. Many audits can put the contractor in a situation where they owe over $10,000 – even if they’re a small business, which proves how serious the matter is.
2. If your 1099 subcontractor does not have insurance or cannot provide you with a certificate, you can charge the sub-contractor the rate for workers compensation.
There is a caveat to this, however: The agreement needs to be visible on your sub-contractor agreement in order for it to be valid. This rate on average tends to be about 30% higher than the rate the subcontractor can buy for themselves on the marketplace. Thus, they need to charge a higher amount to compensate for this and so do you.
3. Making sure that you are billing for the extra cost of workers’ compensation, as well as the extra cost of insurance and payroll taxes.
Workers’ compensation is expensive because it offers a considerable amount of coverage. These policies can pay out millions of dollars in the event of a bad accident – without it, a claim can be the end of your business. You can pass this cost off to your employer/customer and keep it from becoming a cost to you. Coverage protects both parties. If you asked a friend to invest in your business and you told that person you will not be buying workers compensation, it could mean the end of your business if that person gets seriously injured.
4. How you pay people can be very important. There are two ways you can do it – via a 1099 form or a 941 form.
Sometimes there are benefits to paying via a 941. You can keep a good crew under control while having more control of your workers if they are under payroll created by a 941 form. 1099 works great if you want to get the write-off for your employees, as well as passing over the requirement to pay for their insurance. However, this decision has its risks. It is harder to keep a quality team together, because it can force your hand, leading you to hire unknown contractors that may represent your name poorly.
5. Register your company as an LLC if you are in a higher risk trade like roofing, excavation, and scaffolding.
An LLC registration offers you an extra layer of protection if something very bad should happen because the LLC itself will be considered responsible for any debts or liabilities accrued – not the owners or managers.
We certainly hope these guidelines will serve you extraordinarily well as you navigate through larger, more complex projects. But if you need help coming up with solutions to other problems, such as revising your current coverage plan, look no farther than our representatives here at Contractors Liability – either on the web or via the phone at this number: (866) 225-1950. Let’s work together to make your security less of an insecurity.