WHY ZEES USE SUBCONTRACTORS

• Current difficulty with finding employees
• Avoid payroll taxes
• “They are 1099 employees, so I don’t need coverage for them”
• Flexibility

The Dangers

• Subcontractors either need their own coverage in place (and proof provided) or they need to have a waiver from the labor commission. Otherwise, their work and injuries are 100% your responsibility and liability
• Without workers' compensation, you’re self-insuring the risk of injury and associated medical bills

Problems with Insurance Markets

• The Preferred carriers will only write up to 25% for work by subcontractors
• Anything more than 25% is being non-renewed or declined
• Options are:
  • Get classified as a General Contractor and have premiums increase exponentially
    • Not optimal if you are typically doing one type of work vs. various scopes of work (Fence Installation vs. Building an entire house)
  • Get a policy in place with a surplus market which will potentially include:
    • Exclusions to coverage for circumstances that may be part of your operations
    • Increase premiums
• When the carrier does an audit and finds that you aren’t actively monitoring the insurance of subcontractors, they will move all subcontracted expenses to the main classification, increasing premium significantly and non-renewing/canceling coverage 

WHY THIS IS A VERY REAL PROBLEM

• Legal battles over who is negligent in claim situations
• For 1099 employees, the possibility of subcontractors doing side jobs and it coming back on the Franchisee
• Uninsured subcontractors increase risk on the Franchisee
• Insured subcontractor’s insurance is extremely hard to keep track of. Continuous requirements for Certificates of Insurance must be in place, and even then Certificates of Insurance may not be correct/current
• Lack of controls, systems, processes – lack of safety protocols

EXAMPLES OF INSURANCE PROBLEMS FOR YOU 

• Difficulty finding markets on many accounts
• Accounts originally be misclassified, and once classified correctly the premiums skyrocket
• Insurance policies including an exclusion for subcontracted work

HOW TO MITIGATE YOUR RISK

• Uninsured subcontractors need to be treated as employees and therefore payroll estimates need to be increased accordingly
• Strict Subcontractor Agreements enforced with all subcontractors
• Active insurance monitoring of all required insurance is used