Type of Insurance Requested
Prior to passage of the 1991 Workers’ Compensation Act, the status of independent contractors was subject to considerable debate and confusion. The previous statute did not hold general contractors or other such employers responsible for workers’ compensation benefits to independent contractors or their employees, but the common law tests for establishing an independent contractor status were vague and conflicting. It was common industry practice to charge the general contractor a premium to cover employees of an uninsured subcontractor.
The current law made that practice a thing of the past by specifically defining an independent contractor and allowing the parties to agree who is responsible for providing workers’ comp on the independent contractor’s employees. An independent contractor who meets the definition set by law and enters a prescribed agreement with the employer verifying the independent relationship is not eligible for benefits under the employer’s policy, unless the parties agree otherwise. The independent contractor’s employees, if any, are likewise not eligible for benefits.
In addition, the law clearly states that an insurance company is prohibited from charging a premium to an employer who carries workers’ compensation for coverage of an independent contractor or an independent contractor’s employees, without the parties’ agreement.
Independent Contractor Forms
The law prescribes the use of forms developed by the Division of Workers’ Compensation (DWC) to clearly establish these relationships. These forms address only the workers’ compensation responsibilities of the parties and have no application whatsoever if a general contractor does not carry workers’ compensation insurance. (See “Rejecting WC“)
There are three categories of independent contractor relationships covered by the law:
In the trucking industry, a trucking firm hires a truck and its driver to haul goods for others under the trucking firm’s permit. The workers’ compensation law defines specific terms used in the trucking industry:
“Motor carrier” means a person operating a motor vehicle over any public highway for the purpose of providing transportation services or contracting to provide those services.
“Owner operator” means a person who provides transportation service for a motor carrier under contract.
“Transportation service” means providing a motor vehicle with a driver under contract used in transporting passengers or property.
The law specifically states that an owner operator is an independent contractor and that the owner operator and his employees (if any) are not employees of a motor carrier, if the owner operator has entered into the appropriate written agreement with the motor carrier that evidences a relationship in which the owner operator assumes the responsibilities of an employer for the performance of work. With this written agreement, an insurance company may not demand insurance premiums from an employer/motor carrier for coverage of the owner operator or the owner operator’s employees.
As an alternative, a motor carrier and an owner operator may enter into a written agreement under which the motor carrier will provide workers’ compensation coverage to the owner operator and employees. In this case, the motor carrier can deduct the incurred premiums from the contract price.
The appropriate form, DWC-82 must be filed with DWC and the insurance company within ten days of the date of execution.
This category applies only to construction contractors working on:
These contractors and workers must be preparing to construct, constructing, altering, repairing, extending or demolishing one of these structures.
Specific terms are defined as follows:
The law specifically states that the hiring contractor has no obligation to provide workers’ compensation insurance for an independent contractor, as defined, or to the independent contractor’s employees, helpers or subcontractors. An insurance company may not require insurance premiums from a hiring contractor for coverage of an independent contractor or the independent contractor’s employees.
Form DWC-83 can be used to verify the independent relationship and make the parties’ intentions clear. The form must be filed with DWC and the insurer within ten days of the date of execution. The hiring contractor keeps the original form. This agreement states that the subcontractor meets the definition of an independent contractor and is not an employee of the hiring contractor. If the agreement is properly executed and filed, the independent subcontractor is, as a matter of law, an independent contractor and is not entitled to workers’ compensation coverage from the hiring contractor.
Subcontractors with no employees who meet the definition of independent contractor and execute a joint agreement are treated in the same manner as the subcontractors who do have employees.
The same form may be used to establish an employer – employee relationship so that the hiring contractor agrees to cover the subcontractor’s employees. In this case, the parties may agree to allow the hiring contractor to deduct the cost of the workers’ comp coverage from the contract price.
The agreement applies to all jobs between the hiring contractor and the independent contractor for one year after the filing date. A new agreement must be executed and filed at the end of each year. If the parties do not want the agreement to apply to a job subsequent to the joint agreement, DWC and the insurance carrier must be notified using form DWC-84.
To protect employees from being coerced into signing agreements that make them independent contractors, the law makes it clear that such a practice is a violation. A hiring contractor may not exert controls that would make a person an employee under common law tests and still consider them to be an independent contractor in order to avoid liability for workers’ compensation. If a person is found to be an employee of the hiring contractor, the person is covered under the hiring contractor’s policy and is entitled to a refund from the hiring contractor for all amounts improperly deducted as premium.
The law identifies specific activities that do not constitute the exercising of employer-like controls:
A 1994 decision by a DWC appeals panel demonstrates the importance of using and filing the DWC forms properly. The panel ruled that a painter injured on a residential construction project was an employee of the general contractor, not an independent contractor, because the painter was paid by the hour and was not free to hire helpers. In addition, the panel noted that the DWC-83 was not valid at the time of the injury because it was executed in March but not filed with DWC until September, three months after the employee was injured.
This category applies to all other independent contractor relationships except for residential and small commercial construction contractors. This would include not only construction contractors, but any other situation where someone is working for a business as an independent contractor as defined in this section.
“General contractor“ means a person who has undertaken to procure the performance of work or services, either separately or through the use of subcontractors. The Texas Supreme Court ruled in 2007 (Entergy Gulf States, Iinc. V. John Summers) that any business can be a general contractor when it hires an independent contractor to perform work or a service for the employer.
According to law, an insurance company may not demand insurance premiums from the general contractor for coverage of an independent subcontractor or its employees. However, see “Independent Contractors With No Employees” below.
“Subcontractor” means a person who has contracted with a general contractor to perform all or any part of the work or services that a general contractor has undertaken to perform.
The law states that an independent contractor and the independent contractor’s employees are not employees of the general contractor if the independent contractor: 1. is operating as an independent contractor 2. has entered into a written agreement with the general contractor that evidences a relationship in which the subcontractor assumes the responsibilities of an employer for the performance of work
“Independent contractor” means a person who contracts to perform work or provide a service for the benefit of another and who ordinarily:
Form DWC-85 is used to verify the independent relationship and the intent of the parties to exclude the independent contractor from the general contractor’s workers’ compensation insurance. This form does not need to be filed with DWC or the carrier, but should be ready for inspection at audit time or upon request. In addition, the general contractor should obtain a certificate of insurance if the independent carries workers’ compensation insurance on its own employees.
If a person who is excluded from workers’ comp coverage by a subcontractor agreement is found to be an employee of the general contractor, the person is deemed covered by the general contractor’s workers’ comp policy and is entitled to a refund from the general contractor for all amounts improperly deducted as premium.
One important exception relating to the use of DWC-85 should be noted. Independent contractors without employees are considered by law to be employees of the general contractor, and the general contractor is responsible for workers’ compensation benefits for these individuals. The form should not be used for independent contractors without employees.
Exceptions: The law provides two exceptions to this exception:
(1) real estate salespeople compensated solely by commissions are not covered under the real estate agent’s workers’ comp policy, unless coverage is specifically elected by the employer and the salesperson is named on the policy (see Section 406.094, Texas Labor Code), and
(2) independent contractors without employees, who perform work or provide a service for an oil or gas well operator, are not covered on the operator’s workers’ comp policy (see Section 406.123(h), Texas Labor Code), unless the two parties agree using form DWC-81.
The general contractor and the independent contractor with employees can enter into an agreement in which the general contractor furnishes workers’ compensation insurance coverage to the independent contractor and the independent contractor’s employees, even if the independent contractor carries workers’ compensation on its own employees.
By agreeing to provide coverage for the independent contractor’s employees, the general contractor can shield itself from liability for injuries to those employees, according to the Texas Supreme Court decision in Entergy Gulf States, Inc. V. John Summers (2007).
Form DWC-81 is used for this purpose and must be filed with DWC and the general contractor’s workers’ compensation carrier within ten days of execution. The form can also be used to stipulate that the workers’ compensation premium will be deducted from the pay of an independent contractor without employees.
Three Texas court decisions have made it clear that all tiers of premises owners, general contractors and subcontractors are protected by the exclusive remedy provision of the Act when the employer in the highest position purchases workers’ compensation insurance covering all employers and employees on the job.
If the independent contractor carries workers’ compensation on it own employees, it should request WC 03 02 (Designated Workplaces Exclusion) to avoid paying premium on its own policy.
The answer to this one is “probably.” Here are some good reasons for requiring all independent contractors to carry workers’ compensation insurance:
If the injured worker is not an employee of the general contractor, then the general contractor may face a liability suit if the employee of the subcontractor is injured, and brings suit alleging that the general contractor or one of his employees contributed to the injury. Workers’ compensation benefits provided by the subcontractor can reduce the possibility of such actions.
Since the validity of different relationships may be difficult to assess, the general contractor’s liability and workers’ compensation coverage may be more acceptable to underwriters if certificates are required of all subcontractors.
Subcontractors may be hired as independent contractors for a particular job, but perform work outside the intended agreement. The general contractor could be held liable for benefits in these instances, if the subcontractor is uninsured.
Should General Contractors Provide Workers’ Compensation for Independent Contractors and Their Employees?
This is not a bad idea, even if the independent contractor has worker’s compensation coverage. By covering independent contractors and their employees on its own policy, the general contractor can shield itself from lawsuits brought by injured workers under the exclusive remedy provision of the workers’ compensation law.
If the independent contractor has workers’ compensation, the agent will need to attach the appropriate endorsement to preclude payment of premium under that policy while working for and being covered by the general contractor’s workers’ comp policy. The appropriate endorsement is WC 03 02 (Designated Workplaces Exclusion Endorsement). The contractor will need to carefully separate the payroll for the excluded job so the auditor won’t pick it up on audit.
Section 406.096 of the Texas Labor Code requires construction contractors working for the state or any political subdivision, including municipalities, to certify in writing that the contractor provides workers’ compensation insurance coverage for all persons employed on the public project. A subcontractor on the project must provide such a certificate to the general contractor relating to employees of the subcontractor. The general contractor must provide the certificate of a subcontractor to the governmental entity. The law permits a sole proprietor or partner, or a corporate officer with an ownership interest of at least 25 percent, to be excluded from coverage when working for a political subdivision.