Does My Subcontractor Need to Carry Workers Compensation in Illinois?

By Brent Kelly

Over the past few years, one of the biggest frustrations from both general contractors and subcontractors in the state of Illinois has been the issue of workers compensation.

General contractors can use subcontractors for many different jobs and projects.  The subcontractors they use can range from million dollar corporations to a one-man electrical contractor.

Insurance companies in Illinois have and will include subcontractors costs as payroll if those subcontractors do not show proof of workers compensation insurance.  It doesn’t matter if they have 100 employees or no employees.

For the larger subcontractors this is not an issue.  They have employees and thus carry workers compensation insurance that will satisfy this requirement.  The problem arises for the small one-man subcontractor who has never carried workers compensation insurance and is now being told they must obtain this coverage.

Why is this so important?

If you are using subcontractors for any work in the state of Illinois and your subcontractor does not show proof of workers compensation at audit, you could very likely owe a large amount of money.

Let’s say you used a carpenter for several projects throughout the year.  The subcontractor is a one-man shop and has never carried workers compensation. Due to the fact that they have no employees and you have worked with them before, you don’t even question it.  You paid them $10,000 throughout the year and now it’s time for your audit.  The friendly (ok, maybe sometimes not so friendly) auditor explains that unless you show proof that this carpenter had workers compensation, you will owe an additional $2,500 ($25 rate/per $100).  How would you feel? Let me tell you. Pissed off.

Do I think this is fair? Nope

Do I like that my general contractor clients have to ask both new and long-term subcontractors to buy a policy just to protect themselves? Nope

It’s very frustrating for all parties involved. The general contractor is annoyed because they have to ask their subcontractor to do something they may not want to do. The subcontractor is annoyed because they are being forced to buy a policy that in many cases provides no real protection. Finally, it is annoying for the insurance agent because it causes frustrations and extra time to explain this whole process.

I don’t necessarily fault the insurance companies. The reality is that is that if a subcontractor gets hurt, they can often collect reimbursement under the general contractor’s workers compensation policy. At this time in Illinois, having the subcontractor carry their own workers compensation policy is the best way to avoid this from occurring.

I know that there are still many subcontractors who do not carry workers compensation in Illinois and work for general contractors who do not require them to carry workers compensation.  They may never have experienced a negative audit. The reality is that insurance companies are not identical and will not audit the same way. This means that some will fall between the cracks and no one will ever know.

My job as an agent is to education my clients for the potential pitfalls and help them identify potential risks and exposures. I am fully aware that this doesn’t make everyone happy, but my duty is and always will be with my client.

I would much prefer to explain this situation up front and not obtain an account vs. masking it and having my client get slammed with a large audit the following year.

So, if you subcontract work, should you require the subcontractor to carry workers compensation?  The answer is YES.