Back Charge for Failure to Prove Workers Compensation Coverage
Make no mistake, a New Jersey construction contractor is responsible for workers compensation to the employees of uninsured subcontractors. So, your subcontracts should require your subcontractors to provide proof of workers compensation coverage as a condition of starting work. What do you do, though, when your subcontractor starts work and keeps on working without providing proof of insurance? Is tossing the sub off the job your only remedy?
The law says that your workers compensation carrier can assess additional premium on your business if an audit uncovers uninsured subcontractor employees. Because your subcontractor can’t prove it has paid for workers compensation insurance, it has forced you, the contractor, to pay for that coverage. Therefore, you should be within your rights to assert a lawful back charge against the subcontract price for the amount of additional workers compensation and employers liability insurance premium you have incurred as a product of your subcontractor’s failure and refusal (and suspected inability) to produce proof of workers compensation insurance coverage for the period during which the work was performed.
The amount of the subcontractor’s uninsured payroll is deemed to be the contract price of the subcontracted work as a matter of law, regardless of whether the subcontract includes equipment and materials in addition to labor. Generally, the rate you will pay on the classified payroll times the contract price of the subcontracted work equals the amount of the lawful back charge.
The New Jersey Workers Compensation and Employers Liability Insurance Manual, Part 3, Section 3, Rule 45 covers the point and is specific to construction subcontractors:
| “45. Subcontractors’ Employees. The Employers’ Liability Insurance Law, N.J.S.A. 34:15-79, provides that if the employer is a contractor he shall be responsible for compensation to the employees of subcontractors. The proper rates based on the operations in which the contractor is engaged shall be applied to the entire payroll of employees of all subcontractors except for any such subcontractors who have furnished satisfactory evidence of such insurance.
“If the contractor cannot furnish a true statement of the payroll of the employees of any subcontractor, the entire contract price of such subcontracted work shall be considered as the payroll of employees of that subcontractor. “For all piece work the entire amount paid under the contract for such piece work shall be included as payroll. “Information as to coverage for subcontractors will be furnished to the carrier of the general contractor upon written request to the Rating Bureau.” |
The Manual is law in New Jersey via the enabling statute, NJSA 34:15-90.1, and can be found online at https://www.njcrib.com/manual/manual.pdf. The New Jersey Compensation Rating & Inspection Bureau handles these matters, and can be reached at 973-622-6014.
The failure to maintain required workers compensation insurance coverage is a crime.
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Robert J. Incollingo is a South Jersey construction attorney and former chair of the NJSBA Construction Law Section whose practice focuses on representing private owners, design professionals, general contractors and trade contractors in all stages of the construction process.