Workers compensation is one of the most misunderstood coverages contractors deal with – partly because the rules carry real legal weight and partly because so much of it lives in gray areas. In Pennsylvania, if you have employees on W-2 payroll, you are legally required to carry workers’ compensation, and the penalty for going without it can be steep.
This is where it gets nuanced. Pennsylvania treats the owner of a corporation, an LLC, or even an individual as an employee of their own business. Depending on the carrier, that leaves you with two paths. You can sign an exclusion form stating that you do not wish to be covered, and re-file it each year. Or you can choose to include yourself and purchase a workers’ comp policy that covers you personally.
Whether it’s strictly required for a solo operator can be debatable, but many carriers will still insist on seeing that signed exclusion form on file. And depending on your trade, insurers will often allow an individual with no employees to buy coverage on themselves.
If you bring on subcontractors, you’re expected to have a signed subcontractor agreement and to collect a certificate of insurance from each sub as jobs progress. General liability technically extends to subs as long as there’s no exclusion, but workers’ comp is handled differently, and the audit is where it all surfaces.
If you use subcontractors who don’t carry their own insurance, you can be charged a surcharge for uninsured subs. When a sub does have insurance and a signed agreement establishing them as a 1099 sub rather than an employee, you generally won’t be charged for them.
The distinction matters, and Pennsylvania provides tools to sort it out, including a checklist through the state workers’ insurance system to help determine whether a worker is truly a sub or actually an employee. The deciding factor is control. Ask yourself: are you dictating exactly when they show up, what they do, and how they do it — and bringing them to every single job? That looks like an employee.
A genuine subcontractor is closer to this: “I need the electrical work done by this date — how you get it done is on you.” The more independence the worker has, the more clearly they’re a sub, and the cleaner the insurance treatment will be.
In Pennsylvania, every workers’ compensation policy is audited, because everything runs through the state. The audit is typically how a carrier discovers you’ve been using subs — you hand over your financial information, and the picture becomes clear. Keeping signed agreements and certificates of insurance on hand throughout the year is the best way to avoid surprises at audit time.
If a worker covered under workers’ comp is injured on the job and isn’t an excluded party, that injury is generally covered — but it has to be reported immediately. Because the process is mandated through the state, there are procedures that must be followed, and the carrier will investigate to confirm the claim is legitimate.
The picture changes without coverage. If a contractor is injured on the job and has no workers’ comp, they can sometimes pursue the homeowner directly if any negligence can be established. It happens more than people expect: in one long-ago case, a contractor stepped off a beam while building a deck, fell, sued the homeowner, and the homeowner’s insurer paid after finding him negligent. That kind of outcome is a large part of why insurance exists — and why it isn’t cheap.
This article is general information and not specific insurance, legal, or financial advice. Workers’ compensation rules vary by state and situation – confirm your obligations with The Boro Insurance Shoppe.
