By Robert Wilson
Workers’ Compensation is, for many, a mystery. Yet, it is a mystery that has direct impact on virtually every business in this nation, and professionals and employers ignore it at their own peril. If there is one point I can convey here today; a point that you should take away from this article, it is this: Workers’ Compensation is not some uncontrollable expense. It is a manageable one, and there are things you can do to limit your liabilities and control the costs of your project.
Your professional life is inextricably linked with that of the General Contractor. How they operate, including their safety record and insurance coverage, will directly impact your project costs and timeline. To that end there are things you can do to make sure the people you work with are the right ones for a smooth and successful result. The following tips are things you should know as they relate to workplace safety, injury and project liability.
1) Require Workers’ Compensation Coverage for All on the Job Site – Workers’ comp insurance is not like other lines of insurance, and requirements vary widely by state. However, workers’ comp is a general no fault system that provides broad liability protections for employers and the clients they serve. Persons whose injuries are covered by a comp policy are generally entitled to medical care and lost wages regardless of whose fault the accident was, but they are normally not entitled to tort damages; pain, suffering, loss of consortium, etc. Having a contractor or sub covered by liability insurance does not afford the same protections, and can leave the person managing a project far more exposed in certain situations.
2) An Exemption Is Not A Liability Exception – Every state is different, but some allow individual contractors or companies to be exempt from having to purchase workers’ compensation insurance. These exemptions are often based on the size or status of the company, or the type of industry in which they work. If your contractor or any of their subs have such an exemption, this does not remove the liability should someone be injured on the job. You have an obligation to protect yourself and your clients. Someone injured on your work-site who finds they have no guarantee of wage replacement or medical care might end up looking for a legal solution; and the “deep pockets” of that project will likely be an included target of their attempt. Remember, just because a state exempts a small contractor from having to buy coverage doesn’t mean you have to exempt them as well. As noted in the prior point, you should require it of anyone working on your project.
3) Watch Out For the “Helper” – Every construction project has them. Subs bring in helpers to complete or support the jobs they are performing. They might be unskilled day labor, simply sweeping the floor. They might be friends helping out a buddy, or someone who has been drafted from another skill to assist (which by the way, would not be covered by any exemptions – which are often skill specific). While this is very difficult to manage in the chaotic world of construction, there are protective measures you can take. Make sure the contract with the G.C. specifies that they will not knowingly allow anyone to work on the jobsite that is not covered by workers’ comp insurance, or is not a direct employee of the sub-contractor that brought them in. While this may not completely prevent exposure by injury to an uninsured “helper”, it may provide legal recourse for recovery from the General Contractor after the fact.
4) Verify Workplace Safety Records – How safe is the General Contractor you have hired to build your vision? Since your project costs and ultimate success or failure will be tied to the contracting choices you make, you should take a few minutes to research their history. In addition to accident investigations, OSHA regularly inspects job sites, and publicly reports fines and violations. You can research these online at http://www.osha.gov/pls/imis/establishment.html.
5) Keep an Eye for Safety – A safe workplace or jobsite doesn’t happen on its own. A safe workplace happens when people are aware of their surroundings, and actively manage the site. When you are onsite, look around. Is safety equipment being used? Are procedures being followed? Are chemicals and construction supplies safely stored and out of harm’s way? If you
see something, say something. You can help create a culture that values safety, while at the same time minimizing interruptions and unexpected costs.
Ultimately, with a little forethought, preparation and good partner selection, you can indeed create a safe working environment that helps propel your project to conclusion safely and on budget. Workers’ compensation is a manageable expense. You simply need to be aware of the challenges, and protect the interests of both your business and the client you represent. Make sure everyone is covered with a workers’ compensation policy, watch out for those exemptions and “helpers” along the way, and above all, create a culture of safety on your project.
After all, the most inexpensive accident is the one that never happened.
Robert H. Wilson is the President & CEO WorkersCompensation.com, LLC
Part 1 of 2: The Insureds Experience
By Bernard Rousseau, MCIS
NOTE: Opinions expressed in this article are not necessarily those of ABM or it’s publishers.
With economic woes that businesses face today and always, it seems more appropriate than ever to evaluate the condition of our Workman’s Compensation (WC) system. As architects it is our duty to review with proclivity the insurances Constructors carry, as well as our own if CM’ing. It’s not only the law but it’s the right thing to do. Zero tolerance should be your stance when it comes to missing certificates, even on the smallest residential job. For the purposes of this white sheet we are going to examine some of the insureds problems with WC and evaluate who or what may be to blame for it’s many faults.
Workmans Compensation has become the “hot button for the quality vector” (to quote ABM editorial August 1987) of our time. Rates for this type of insurance are so high that insurance estimates have become one of the highest line-items in bids reviewed. Insurance companies have lobbied for and legislated demanding positions for themselves which all but ensure growth in revenue generation, and the unequivocal surrendering of your license if you can’t pay their often insoluble demands. If they can’t earn it, they will most assuredly take it -by any means necessary. Why should they have to work for it too?
Gone are the days when you could drive a truck down to your corner parking lot and pick up a day laborer. If you are insured, better think twice. If you are uninsured -forget about it! If you bring a laborer to a commercial site where there’s framing going on, be prepared to pay upwards of 4x the minimum-wage-ish hourly rate of your new best friend. That’s because the hazard classification is adjusted upward to dispenate to the highest level of exposure risk. You may no longer designate employees at the risk level of cleaning staff if there is any framing activity going on nearby. If there is nuclear testing going on nearby then you better obtain a plutonium-backed credit card.
That means that you will pay the actual cost of an experienced (and expensive) framer per hour to sweep the floors, regardless of when it gets done, or who it gets done by. Needless to say, folks, Have I got your attention yet? Good, it gets worse – far worse.
Legislation passed last year makes it a felony to under-report employee compensation. Forget about robbing a bank -mess up your time sheets and you are going down. Put your hands over your head, you Bad Guy. You will possibly face licensure discipline, and technical time with your attorney as well. Your attorney will buy a new car and you my friend may have to watch Barney reruns during the week. Do this three times in California and it will be from a very small hard room. Try saving money on somebody else’s trade, are these guys for real?
I’ve always said it’s better to let contractors be contractors. However to see our designs through with integrity sometimes we build, and build well. But, one must have a limit to the amount they can be forced to pay and with WC but so far, the sky is the limit.
The obvious risk assessment lecture aside let’s discuss the EAP or Estimated Annual Premium from WC. This figure is based on information that you provide your insurer prior to obtaining a certificate of insurance. This multiplier is used to calculate the cost of the monthly premium discount rate modifier which boils down to a “discount” which never gets applied to your actual insurance cost. Each month when you calculate the premium you use the fee structure that the insurer supplies (DRM) and diligently fill in all of the rates for the trades, and you have an unbelievably enormous bill for WC. So you begrudgingly seal the envelope and post it in the mail with an actual frown on your face, as well as any potential for profits you may have earned. Well smile, you’re on candid camera! Your potential nightmare has only just begun.
What your insurer has methodically forgotten to mention is that the rate on your quoted DRM (based on your EAP – another very loose integer) was based on
data that you supplied earlier as “projections” of exposure risk for the year (as if you know what they’re even talking about, which of course you do not, and that’s the point) given in advance of actually performing ANY work is not what the insurance will cost at all. You’re quote is for a rate that you will end up not paying. *See the emboldened italicised print below* At the end of your policy period any amount that exceeds your original (usually marginal) projections is reverse billed, then recategorized under another risk allocation depending soley on how much money they think you’re worth (based on your EAP, which you supplied, see Bad Guy above.) It is then that everyone who has ever had a policy receives a written 10-day Demand Letter to for their new bill to pay an incredibly enormous sum. Surprise Gomer Pyle!! I hope you have a law degree!
Moral to this story: Pay the Actuarial Cost not the EAP & DRM Projected cost. There is a difference. If not located on your bill (no surprise), find out what it is and pay that amount. By the way, it will be more than your DRM.
Rate discount modifiers aside, another tactic commonly associated with a WC policy is to reassign risk allocation classes. Back to Johnny who quit pushing the broom two days after he was hired thankfully- his new insurance rate reallocation will easily triple or quadruple what he was paid in wages as a broom pusher guy. All because somebody on the jobsite somewhere had a skill-saw plugged in, his rate went from the average cleaner upper risk to that of a carpenter-on-scaffolding guy paid under $25.00 per hour at the highest risk class! This means you’re $8.50 rate will end up with fees attached at a tad under $40-60 bucks an hour. And you had the guy take out the trash, what were you thinking? You are a Bad Guy!
As an owner of a WC policy it is incumbent upon you to know all of these things which the insurer does their best to hide. They send out rate plan sheets with numbers which are inaccurate to your actual cost disguised as a discount rate modifier. They won’t give you all of the classifications that you need to properly allocate the insureds risk class allocation during the period in which the work is transpiring. After the fact, after the policy has been cancelled the information becomes voluminous in giant mail packets stuffed with hundreds of pages of rate classifications. You should have known better they will tell you. All of a sudden you now have to be an asset manager and specialist in risk with a degree in law. Their ideology is that most contractors are so stupid they will just pay it and many do.
My best advice is to not enter into a WC policy without at least knowing all of the facets of the industry and most importantly the issues presented on this side of the argument. In any event, you will not go without hearing from somebody about something regarding your insurance after the policy period. It is 99% guaranteed that you will be audited and four or five months later, possibly as many as two years after the policy has been cancelled assessed a higher fee than what was originally quoted, no matter what you do or how you file your paperwork.
Also when you receive a 10-day demand letter from your WC insurer it is imperative to respond in writing within those ten days. A challenge letter will stave off bankruptcy for a period of time until you can obtain legal representation which you will need to exercise to get any real results from the insurer. You can bet your insurance will be cancelled and you are basically out of a J.O.B., a career, and perhaps a future in contracting, and architecture if involved in Construction Managing.
In Summary, Worker’s Compensation has become one of the most un-manageable costs and risks that a firm can face. This is especially true if that firm participates in design-build. Even the smallest firms with one or two employees will be hammered with additional and unforeseen costs. Apparently State Fund, in California, for example, has appointed itself a Government Agency and takes actions against architects who act as builders and revokes their licenses through the bonding and surety company when their extortion for funds is met with objection. Be wary of your Worker’s Compensation provider. They will not treat you fairly, and will break the law routinely to get at your profits in any way they can. Sadly, many companies have been forced out of business by this practice nationwide. It is highly recommended that if you receive a bill from your Worker’s Compensation provider after you have already paid your premiums that you contact an attorney right away. You may need to file a suit against your provider to get them to take you seriously in standing up to their wildly extortive measures. Hopefully, soon the Worker’s Compensation nightmare will be reduced to a thing of the past, and the carriers will take less vacations at our expense.