How does having independent contractors affect your workers' compensation policy and premium audit?
The State of Rhode Island Workers’ Compensation Law requires that an employer with one of more employees have a workers’ compensation insurance policy. If an employer retains the services of an individual who is an independent contractor as opposed to hiring the individual, the employer is not obligated to carry workers’ compensation for that independent contractor.
How do you define an independent contractor?
The State of Rhode Island Workers Compensation Law states that an individual will not be considered an independent contractor unless the individual has filed a “notice of designation as independent contractor” form (DWC-11-IC) with the Rhode Island Department of Labor and Training (DLT). It is not sufficient to have completed the DWC-11-IC form, the form has to be filed and accepted by the DLT.
What is a policy basis of premium?
The policy basis of premium includes payroll and all other remuneration paid or payable during the policy for the services of:
- All your officers and employees engaged in work covered by this policy; and
- All other persons engaged in work that could make us liable under Part One (Workers Compensation Insurance) of this policy. If you do not have payroll records for these persons, the contract price for their services and materials may be used as the premium basis.
How is an independent contractor reviewed for a workers' compensation premium audit?
An individual, an independent contractor or a subcontractor, i.e. “persons”, may “make us liable” under Workers Compensation Insurance. A detailed premium audit includes a review of financial records in addition to payroll records to identify if the employer has retained the services of persons who are not paid via payroll.
During this premium audit review, the auditor will determine if the persons may “make us liable”. If the determination is yes, the persons may “make us liable”, then the payroll of the persons, if available or the contract price will be used as the premium basis.
As an employer, you can help to clarify that persons engaged in work on your behalf who are not paid via payroll are independent contractors, by providing the auditor with either:
- A certificate of Workers Compensation Insurance, OR;
- A DWC-11-IC, “Notice of Designation as Independent Contractor” filed with the Department of Labor and Training, and
- A general liability certificate of insurance, and
- A business invoice(s) from the persons submitted to the employer
All subcontractors and independent contractors, i.e. persons who may “make us liable”, who have not provided the requested documentation of either 1) or all three parts of 2) will be included in the premium basis at audit.
How should you prepare for the audit during the policy period?
Obtaining the documents before or while retaining the person’s services is much easier than attempting to locate the person after your policy has expired. It is recommended that you obtain these documents at the beginning of your relationship with the independent contractor or subcontractor to ensure:
- Your policy doesn’t respond to a claim from an unexpected source, and that
- The amounts paid to those persons are not included in the basis of premium at audit