By Dan West, Brown & Brown of Detroit Commercial Insurance Advisor
As commercial insurance advisors, we are frequently asked about excluding sole proprietors, officers, or family members from workers’ compensation coverage. These guidelines can be difficult to decipher, but understanding is key, especially in industries that use a large number of subcontractors, such as landscaping, construction, and agriculture. A document/form titled the “Michigan Workers’ Compensation Placement Facility Independent Contractor Worksheet” is one tool that can help clarify matters.
Under Michigan state statute, workers’ compensation policies must provide coverage to employees of subcontractors that do not carry workers’ compensation coverage. State laws requires insurance companies to collect premium for uninsured subcontractors.
Therefore, if your company does use subcontract labor, it’s imperative that you vet and document them using the Independent Contractor Worksheet.
Prepare yourself PRIOR to a Work Comp (and General Liability) audit in order to expedite the process and protect yourself from possible inclusion of this exposure, which could increase the premium you pay.
Types of Subcontractor Companies & Work Comp Options
- Corporation, Partnership, or LLC: Must have proof of workers’ compensation coverage OR a valid form BWC 337 (filed and stamped by the state). A form BWC 337 applies only to entities where the only employees are officers, partners, or LLC members who want to exclude themselves from coverage.
- Sole Proprietor with Employees: Must have proof of workers’ compensation coverage unless those employees are all immediate family members, in which case they have the option of filing a BWC 337 to exclude them. To determine that the sole proprietor did have employees, the Independent Contractor Worksheet should be completed by the sole proprietor, and they should furnish proof of insurance OR BWC 337.
- Sole Proprietor with No Employees, Other Subcontractors, or Helpers: Must show evidence of independence and proof that they hold themselves out as a business by completing the Independent Contractor Worksheet. This is not an exclusion form, rather it is a list of criteria upon which a decision can be based as to whether the subcontractor represents an exposure to the policy.
More information as well as the Independent Contractor Worksheet itself can be found and downloaded from the CAOM website: https://caom.com/Portals/0/Uploads/Circulars/MWCPF/MWCPF222.pdf
For more guidance and advice on this and other risk management concerns, please contact a Brown & Brown advisor at 586.977.6300.