Does a Pennsylvania Contractor Have to Carry Workers’ Compensation Insurance?
In most cases, yes – if you have employees.
Pennsylvania generally requires an employer with at least one employee to insure its workers’ compensation liability unless all workers fall within one of the State’s limited exclusions.
Workers’ compensation is also a benefit because it provides an important safety net for your employees when the unexpected happens. Even businesses that take workplace safety seriously can’t eliminate every risk. Work-related accidents, injuries, and illnesses can and do happen in every industry.
Why Is Workers’ Compensation So Important for Contractors?
Contracting businesses often face workplace risks that simply don’t exist in many other industries.
Depending on your trade, your employees may regularly work:
- On ladders, scaffolding, or roofs
- With power tools and heavy equipment
- Around electrical systems
- With heavy building materials
- At constantly changing job sites
- Around vehicles and machinery
- In unfinished or hazardous environments
Even an experienced employee can be injured.
Workers’ compensation insurance helps make sure employees have access to applicable benefits after a work-related injury while also helping protect the employer from potentially devastating financial consequences.
Workers’ Compensation Helps Protect Your Employees
Your employees are one of your company’s most valuable assets.
If an employee is injured while working, workers’ compensation may provide benefits for covered expenses such as medical treatment and a portion of lost wages.
For an injured employee and their family, those benefits can be extremely important while the employee receives treatment and recovers.
Providing workers’ compensation coverage isn’t simply a legal obligation for many employers. It’s part of being a responsible business owner and protecting the people who help your company succeed.
Workers’ Compensation Also Helps Protect Your Business
A serious workplace injury can become extremely expensive – especially if a workers’ compensation policy is NOT in place.
Without mandatory workers’ compensation coverage, an employer could still be responsible for a worker’s medical expenses, lost wages, legal costs, penalties, and other financial consequences.
Pennsylvania warns that employers who fail to maintain required workers’ compensation coverage may face employee lawsuits as well as criminal prosecution, potentially including substantial fines or imprisonment.
For a small or growing contracting business, the financial consequences of an uninsured workplace injury could be significant.
Workers’ compensation helps protect against a workplace accident becoming a financial crisis for your business.
What If You’re a Contractor With No Employees?
Some Pennsylvania contractors without employees may not be required to purchase workers’ compensation insurance.
Pennsylvania identifies certain situations involving sole proprietors or general partners with no other employees, as well as LLCs where the only workers are members of the LLC. Corporate executive officers may also qualify for an exclusion under certain circumstances.
However, contractors shouldn’t automatically assume they’re exempt simply because they consider themselves self-employed.
Your business structure and, more importantly, the people performing work for your business can affect your workers’ compensation obligations.
That’s why it’s important to review your individual situation with a knowledgeable insurance professional.
Be Careful with Independent Contractors and Subcontractors
This is especially important in the construction industry.
Calling someone an “independent contractor” or paying that person with a 1099 doesn’t automatically mean the worker qualifies as an independent contractor under Pennsylvania law.
Pennsylvania’s Construction Workplace Misclassification Act (Act 72) establishes specific requirements for determining whether someone performing construction work qualifies as an independent contractor.
Among other requirements, the individual must have a written contract, be free from control or direction over the work, and be customarily engaged in an independently established business. Additional requirements also apply.
If a worker has been incorrectly classified as an independent contractor when that person should legally be considered an employee, the contractor could face workers’ compensation and other employment-related consequences.
Don’t Assume a 1099 Means You Don’t Need Workers’ Comp
One potentially costly mistake contractors can make is thinking:
“I gave them a 1099, so they’re not my employee.”
Pennsylvania doesn’t determine a worker’s status simply by the tax form they’re given or the title a business uses.
Factors such as who controls the work, who provides equipment, where the work is performed, whether the working relationship is ongoing, and who determines working hours can be relevant.
Construction businesses also have additional worker-classification requirements under Act 72.
If your business regularly uses subcontractors or independent contractors, it’s important to make sure they’re properly classified and that you maintain appropriate documentation.
Make Sure Your Subcontractors Are Properly Insured
Subcontractors create another important workers’ compensation consideration for Pennsylvania contractors.
Pennsylvania’s Workers’ Compensation Act states that a contractor may not subcontract all or part of a contract unless the subcontractor has presented proof of workers’ compensation insurance.
Maintaining current certificates of insurance for subcontractors can therefore be an important part of protecting your contracting business.
It can also help prevent surprises during an insurance audit or after an accident.
Workers’ Compensation Can Affect Your Ability to Obtain Building Permits
Workers’ compensation insurance isn’t only relevant after someone gets hurt.
It can also affect your ability to do business.
Under Pennsylvania law, before issuing a building permit to a contractor, a municipality must require proof of workers’ compensation insurance—or an affidavit stating that the contractor doesn’t employ other individuals and isn’t required to carry workers’ compensation insurance.
Having the proper insurance and documentation in place can help prevent unnecessary delays and keep your projects moving.
Workers’ Compensation Is Part of Running a Responsible Contracting Business
Contractors spend a great deal of time protecting their businesses.
You maintain your equipment. You train your employees. You follow safety procedures. You make sure jobs are completed correctly.
Insurance should be part of that same risk-management strategy.
Workers’ compensation coverage helps protect your employees when they’re injured on the job while helping protect your company from the potentially significant financial consequences of a workplace injury.
Make Sure Your Workers’ Compensation Policy Fits the Way You Actually Do Business
Simply having a workers’ compensation policy isn’t the end of the conversation.
Your insurance should accurately reflect your employees, the work they perform, your payroll, and your use of subcontractors. As your contracting business changes, your insurance needs can change too.
That’s where working with an experienced independent insurance agency can make a difference.
At Meixell-Diehl Insurance, we can take the time to understand how your contracting business operates, review your current workers’ compensation insurance, identify potential coverage concerns, and help you find protection appropriate for your business.
If you own a contracting business in Pennsylvania, don’t wait until an employee gets hurt to find out whether your workers’ compensation insurance is properly set up. Contact Meixell-Diehl Insurance to review your coverage and make sure your business and your employees have the protection they need.
This article provides general insurance information and is not legal advice. Pennsylvania workers’ compensation requirements can vary based on business structure and individual circumstances.