Three subcontractor traps to avoid
With more and more subcontractors looking for ways to cut costs and become more competitive, some may try to circumvent their Workers’ Comp obligations. While it may be tempting to accept the lower bid, the risk is substantial. Here are three common traps to avoid:
Contractor is “exempt”
There are several ways a subcontractor can claim to be “exempt.” One common practice among out-of-state subcontractors is to apply exemptions from one state to another or to claim that the other state’s coverage is sufficient. It is becoming increasing challenging to address multi-state issues as states adopt statutory changes. Don’t accept the subcontractor’s position as fact – be sure you understand the applicable laws.
Certificate of insurance is cancelled
While it is a best practice to require certificates of insurance from subcontractors to provide evidence that they have their own Workers’ Comp, this is not sufficient. The certificate verifies that the contractor had coverage on the date the certificate was issued. If the policy gets cancelled for non-payment or another cause, your company is exposed. Require in your contract and on the certificate of insurance that you receive a notice of cancellation.
Certificate of insurance lapses
A certificate of insurance is only good for the policy inception and expiration dates shown on the certificate. To ensure that there is no gap in coverage, there should be a system in place to monitor expiration dates and require updated certificates of insurance before the policy lapses.