Contractor clients often come with complicated workers’ comp questions—and even more complicated risk exposure. Independent contractors and sole proprietors in construction and skilled trades frequently assume they don’t need workers’ compensation coverage, but that assumption can put them (and their business partners) at significant legal and financial risk.
As a retail agent, understanding the nuances of contractor workers comp helps you better advise clients, prevent misclassification issues, and uncover new coverage opportunities. Here’s what you need to know.
Unlike traditional workers’ compensation policies written for W-2 employees, contractor workers comp often deals with a gray area of independent contractors, subcontractors, and 1099 labor. These workers may not be legally required to carry coverage—but that doesn’t mean they’re free from liability.
Many contractor clients assume if a subcontractor is “independent,” they’re automatically not their responsibility. But if that subcontractor doesn’t carry their own workers’ comp and gets injured, your client may be on the hook. Educating clients to always collect and verify certificates of insurance (COIs) is crucial.
Some self-employed contractors think, “I don’t have employees, so I don’t need comp.” But injuries happen, and personal health insurance won’t cover job-related incidents. Helping clients understand the value of voluntary comp coverage can fill a major protection gap.
Contractors often misclassify W-2-type workers as 1099s to save on taxes or simplify payroll. If challenged in an audit or lawsuit, this can lead to denied claims, fines, and back premiums. Agents can prevent long-term headaches by ensuring clients are classifying correctly from day one.
Many contractors fail to account for uninsured 1099s or incorrectly reported payroll, only to get hit with premium increases after a policy audit. Advising clients to report all labor—employee or not—helps reduce exposure and prevent future billing surprises.
True independent contractors are often exempt from workers’ comp mandates—but that doesn’t mean they’re without risk. Carrying their own policy can help them qualify for bigger jobs, protect themselves financially, and prevent disputes around liability.
Contractors hiring subcontractors should understand that if those subs don’t carry their own workers’ comp, the hiring contractor could be liable for injuries. Even without a formal employment relationship, responsibility often falls to the one issuing payment.
Many states presume that construction workers are employees unless proven otherwise. If your client can’t demonstrate that a worker is truly independent, a claim may be processed—and billed—as if they were a full-time employee.
When misclassification occurs, clients may face unexpected workers’ comp claims, retroactive premiums, tax penalties, or lawsuits. As an agent, it's your job to flag risky labor structures and advise clients on how to stay compliant.
Help clients understand that being “exempt” from workers’ comp doesn’t mean being safe from lawsuits or claims. The cost of an uncovered injury can far exceed the cost of coverage.
Train clients to require up-to-date COIs from every 1099 subcontractor they hire. No COI? They should either be added to payroll or not used. This small step can prevent massive liabilities.
Overestimating payroll slightly is better than underestimating and facing an audit bill. Guide clients through proper payroll projections and help them build in a buffer when using 1099s.
Even if your client isn’t required to carry coverage, voluntary comp can protect them personally. Offer this as a value-add—not just a checkbox—and frame it as a smart business move.
Working with wholesalers who specialize in the trades gives you access to nuanced underwriting, competitive markets, and smarter placement strategies. That means better results for your clients—and your book.
GL coverage complements workers’ comp by protecting against third-party injuries and property damage. It’s essential for any contractor, especially those working on client premises.
Contractors rely on tools and machinery that aren’t always covered by standard property policies. Inland marine insurance protects these mobile assets in transit or on-site.
From work vans to pickups, contractor vehicles are often exposed to risk. Commercial auto ensures they’re protected beyond personal auto limits.
When project requirements or contractual obligations demand higher limits, excess liability or umbrella policies can fill the gap. These are especially useful for GCs and multi-site operators.
For exempt contractors who decline traditional comp, occupational accident coverage can provide some protection against medical costs and lost income—though it’s not a legal substitute in many states.
Contractor workers comp isn’t one-size-fits-all. At Novatae, we help retail agents navigate complex eligibility rules, tough-to-place trades, and changing state regulations. Whether your client is a one-man crew or a mid-size GC using subs, we can help you build the right coverage solution.
Need help quoting contractor workers comp?
Reach out to Novatae’s construction and workers comp specialists—we’ll help you protect your clients and grow your book.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.