How to collect and check certificates from your subcontractors

Every subcontractor you hire should hand you a certificate of insurance before they set foot on the job, showing general liability and workers’ comp that meet your subcontract, with policy dates that cover the work. Then you check it, file it, and ask for a new one before it expires. That’s the whole system. Skip any one step and the gap tends to stay invisible until an injury or an audit exposes it.

The reason is less obvious than “the sub might cause an accident.” In some states, a sub without workers’ comp can become your workers’ comp problem, both for their injured employees’ claims and for the premium your insurer charges at audit.

Why an uninsured sub becomes your problem

Michigan’s workers’ compensation agency says it plainly. If a subcontractor doesn’t carry workers’ comp and doesn’t have a state exclusion form on file, a work-related claim by that sub’s employee may become the general contractor’s responsibility, because Michigan law lets the liability transfer from an uninsured sub to the GC. The GC can then sue the sub to get the money back, which is cold comfort if the sub had no insurance because it had no money.

New York’s State Insurance Fund tells its own policyholders the same thing from the premium side: if your subcontractor doesn’t have coverage, the sub will be included in your policy, and you’ll be responsible for the premium and for claims filed for that sub.

This next part catches small contractors at the end of the year. Workers’ comp premium is based on payroll, and at the end of the policy period your insurer runs a premium auditPremium auditA premium audit is the insurer’s review of your actual payroll, sales or other figures after a policy ends, used to replace estimates and set your final premium.Read the definition to replace the payroll estimate with real numbers, and that’s exactly when NYSIF says you’ll be asked to produce your subs’ certificates. If you can’t, your premium will be recalculated to include those subs in your payroll. A Michigan insurance bulletin reproduced in the same agency booklet, written for the state’s residual market, spells out the mechanics. The contractor has to show the sub had coverage or a properly filed exclusion form, and for each sub with employees where it can’t, extra premium is charged on that sub’s payroll at the rates that would apply if they were the contractor’s own employees. If the contractor can’t produce the sub’s payroll records either, the full subcontract price for work done during the policy period is treated as payroll.

That last rule is the expensive one. Under a rule like it, a $60,000 drywall subcontract (an illustrative figure) can show up on your audit as $60,000 of your own payroll, priced at drywall rates, because one certificate is missing from a folder.

Those are two states’ rules, though. How your insurer treats uninsured subs depends on your state and your policy, so ask before the audit, and if you need to check your own state’s rules, the Department of Labor keeps a list of state workers’ compensation agencies. If your general liability is audited too, ask how it treats subs, since that depends on how your policy is rated.

What to ask for before a sub starts

Put the requirement in the subcontract and enforce it at the gate. A certificate that “is coming” is a certificate you won’t get.

Ask for a certificate showing every coverage your own contract with the owner or client flows down to the sub: usually general liability with completed operations, workers’ comp and employer’s liabilityEmployer’s liabilityEmployer’s liability insurance helps pay legal costs and damages when an employee, or their family, sues your business over a work-related injury or illness.Read the definition, and auto if they drive to the site. If you need to be an additional insuredAdditional insuredAn additional insured is a person or company, such as a landlord or client, added to your liability policy so it can protect them from claims tied to your work.Read the definition on their general liability, or need a waiver of subrogationWaiver of subrogationA waiver of subrogation is an agreement, usually added to your policy by endorsement, that stops your insurer from recovering claim payments from a specific client, landlord or contractor.Read the definition, ask for the endorsements themselves, since the boxes on the certificate only indicate that they exist. New York’s guidelines for state contracts recommend endorsements for both ongoing and completed operations, and your own client may expect you to collect exactly that from everyone below you.

Ask for it to come from the sub’s agent or insurer instead of as a PDF the sub forwards from last year, because the producer named on the certificate is the person who can confirm it if anything looks off.

Checking a certificate in five minutes

Most certificates are the ACORD 25 form, and the certificate of insurance guide walks through every field, including the name, date and limit checks that apply to any certificate. For a sub, add these:

1. A workers’ comp row. If it’s missing, ask why before anything else.
2. The owner exclusion box. If “proprietor, partner, executive officer or member excluded” says yes and the sub says it has no employees, the policy may cover no one who’ll actually be on your job.
3. The state. If the sub is based in another state, ask its agent to confirm the comp policy applies to work in your state.
4. The endorsements. If you required additional insured status or a waiver, check the ADDL INSD and SUBR WVD columns and get copies of the endorsements.
5. The dates against the schedule. The policies should run through the end of the sub’s work, with the expiration date noted.

Anything missing goes back to the sub the same day, however small. Don’t let them start until it’s fixed.

Tracking expirations

A certificate only shows one day. NYSIF says certificates show active coverage as of the date of the certificate, and it suggests getting one before work starts, renewing it every year, and checking periodically that coverage is still active. A policy can be cancelled for nonpayment the week after the certificate was printed, and the copy in your file won’t change to tell you.

New York’s state contracting guidelines describe a simple routine for this, written for state agencies but easy to borrow: when a contractor’s policy will expire during the contract, the agency diaries the file for 30 days before the expiration date, and if proof of renewal hasn’t arrived by then, it writes to the contractor requiring a new certificate before the old coverage runs out.

You don’t need software to do that. A spreadsheet with each sub’s name, each policy’s expiration date and a reminder date 30 days earlier is still enough for most small contractors. Keep every certificate and endorsement you collect for the whole policy period, too, since NYSIF tells policyholders to keep a record of all subcontractor coverage documents they obtain.

What if a sub doesn’t have workers’ comp?

Plenty of good subs are one-person businesses with no employees, and some states, Michigan among them, don’t require a sole proprietor with no employees to carry workers’ comp.

Michigan’s guidance shows how that plays out. Its agency says an auditor can’t charge a general contractor premium on money paid to a sub that’s a sole proprietorship with no employees, but the contractor has to give its insurer reasonable proof of that status. The agency lists the kinds of proof that can work, including the sub’s federal ID number, a copy of the written contract, a list of other contractors the sub works for, a sworn statement that the sub has no employees, and proof that the sub is paid by the job and gets a 1099. Michigan also uses a state exclusion form for some owners who can exclude themselves, though the agency warns that the form says nothing about the relationship between that business and a contractor.

Other states handle this with their own exemption certificates, registrations or none at all, so check yours through your state agency. And keep in mind that a worker who’s really your employee doesn’t become a sub because of a 1099. Do independent contractors need workers’ comp? covers how the tests work.

If a sub with employees has no workers’ comp, you’ve got three choices: wait until they buy it and send a certificate, find a different sub, or accept that your own policy may end up covering their crew and pricing it in at audit. The third choice is the expensive one. Nobody picks it on purpose.

If you already have a Corgi policy without workers’ comp, you can add comp to it without a new application, and your certificate is available the day you buy, ready to send to a GC from your account.