As an employer, you must pay workers compensation insurance premiums for all workers that your insurer covers. This includes all of your employees, as well as any subcontractors you use that your insurer provides workers comp coverage for. To make sure you don't overpay on your premiums, make sure you get itemized statements from all of your subcontractors.
Calculating Workers Compensation Insurance Premiums
Because workers compensation provides workers who are injured on the job with financial payments based on their salaries, workers compensation payments are also based on workers' salaries. The more a worker makes, the more a policy will pay them if they're injured -- and the higher the premiums for that worker's coverage will be.
Premiums for employees that receive based on their wages and salary, which is recorded directly on their pay stubs. Insurers can't use these documents to calculate the premiums for subcontractors, though, because they don't receive pay stubs. Instead, they submit invoices.
Therefore, workers compensation insurers use invoices to calculate premiums for subcontractors.
Breaking Down Subcontractor's Invoices
Specifically, insurers use the labor portion that's billed on subcontractor's invoices to calculate their insurance premiums. Insurers don't factor in materials costs, because they don't have to pay on these costs if a subcontractor is injured. They only need to pay on the labor costs, because it's the labor costs that are akin to an employee's wages or salary.
If your subcontractors don't provide an itemized invoice, however, your workers compensation insurance company won't know how the labor and materials costs break down. They'll have to assume the entire invoice is labor, or else they'll risk underestimating the cost that a potential claim poses.
Thus, if your subcontractors just submit invoices for totals without breaking down their fees, you may end up overpaying for workers compensation insurance. Your insurer will base the premium that you pay on both the labor and materials cost. In some cases, this could lead to drastically overpaying. For instance, if materials account for 50 percent of an invoice but aren't broken out, you'll end up paying twice as much as you should for that worker's workers compensation insurance.
To avoid overpaying on workers compensation insurance, ask all your subcontractors to break out their invoices. It's easy for subcontractors to create itemized bills, and it's a reasonable request to ask what specifically you're paying for. Most important, getting itemized invoices will help you keep your workers compensation insurance premiums low.