Workers’ Compensation Insurance for Virginia Contractors

What is workers’ compensation insurance?

Workers’ compensation insurance is designed to provide benefits for eligible employees who experience covered work-related injuries or occupational illnesses. Depending on applicable law and the facts of the claim, benefits may include medical treatment, a portion of lost wages, rehabilitation and certain disability or death benefits.

A workers’ compensation policy generally also includes employers liability coverage, subject to its own limits, conditions and exclusions. Employers liability may address certain covered claims against an employer that fall outside the statutory workers’ compensation benefit system.

Workers’ compensation is separate from general liability insurance. General liability is generally centered on covered claims made by third parties. Workers’ compensation is centered on eligible work-related employee injuries and occupational illnesses.

Virginia workers’ compensation requirements

Virginia contractors must pay particular attention to how workers are counted. Requirements can depend on the number and type of workers involved, how the business is structured and how Virginia law treats employees and subcontractors.

A worker does not necessarily fall outside workers’ compensation considerations merely because the business calls that person an independent contractor or reports compensation on a Form 1099. The actual working relationship and applicable law matter.

Why contractors face additional workers’ compensation complexity

A contractor’s workforce can change throughout the year. Employees may perform several types of work, crews may move between projects and subcontractors may bring additional workers onto a site.

Insurance companies may ask about:

• Every trade and service performed
• The number of full-time, part-time and seasonal workers
• Payroll divided by employee duty
• Owners and officers who perform field work
• Work performed above ground or below grade
• States where employees perform work
• Employee travel and temporary work locations
• Subcontracted work and annual subcontractor costs
• Safety procedures and employee training
• Prior workers’ compensation claims

Complete information helps the agency and insurance company determine appropriate classifications, estimate premium and identify operations requiring additional underwriting.

Employee classifications

Workers’ compensation classifications describe the work being performed and help determine the rate applied to payroll. The proper classification depends on the actual operation—not simply the contractor’s business name.

A contractor may have workers performing field operations, clerical duties, sales work or other functions. Whether payroll can be divided among classifications depends on applicable classification rules, employee duties and the quality of the contractor’s records.

Contractors should avoid assuming that all payroll can be assigned to the least expensive classification. Incorrect classifications can produce an unexpected premium adjustment at audit.

Owners, officers and members

The treatment of business owners, corporate officers, LLC members and partners depends on the entity structure, applicable law, insurer requirements and any permitted election or rejection of coverage.

An owner should not assume that being excluded from payroll means there is no workers’ compensation exposure or that exclusion is always appropriate. Owners who work in the field should discuss available options and understand what protection they would or would not have.

Ford Agency will need the business entity type, ownership details, officer or member duties and the desired treatment of eligible owners when preparing a submission.

Subcontractors and uninsured workers

Subcontractors can create one of the largest audit surprises for a contracting business. If a subcontractor does not maintain appropriate workers’ compensation insurance, the subcontracted cost or associated workers may affect the hiring contractor’s policy and premium.

Contractors should maintain organized records that may include:

• Written subcontract agreements
• Current certificates of workers’ compensation insurance
• General liability certificates
• Invoices showing labor and material costs when available
• Subcontractor payment summaries
• Descriptions of the work each subcontractor performed
• Coverage dates matching the period when work was performed

A certificate should be reviewed for the correct named insured, coverage dates and insurance company. An expired certificate or a certificate for an unrelated entity may not satisfy the insurer’s audit requirements.

What is a workers’ compensation audit?

Many workers’ compensation policies begin with estimated payroll, classifications and subcontracted costs. After the policy period, the insurance company conducts an audit to determine the actual exposure.

The audit may request:

• Quarterly payroll reports
• Federal and state payroll filings
• Profit-and-loss statements
• General ledgers
• Employee duty descriptions
• Officer and owner information
• Cash-disbursement or vendor summaries
• Subcontractor certificates of insurance
• Subcontractor invoices and payment records

If actual exposure is higher than estimated, an additional premium may be due. If it is lower, the policy may produce a return premium, subject to policy terms, minimum premiums and audit rules.

Contractors should respond to audit requests promptly and accurately. An incomplete or missed audit can result in an estimated audit, additional premium, collection activity or difficulty obtaining future coverage.

Experience modification factors

Contractors that meet applicable eligibility criteria may receive an experience modification factor, often called an experience mod or EMR. It compares aspects of the contractor’s loss experience with expectations for similar operations.

The experience mod can affect workers’ compensation premium and may also be considered when a contractor bids on certain projects. Payroll, classification, claim frequency and claim severity can all influence the calculation.

Contractors should review experience-modification worksheets for accurate payroll, classifications and claim information. Questions about a particular calculation should be directed to the appropriate rating organization, insurance company or qualified professional.

Work performed outside Virginia

A Virginia contractor may send employees into another state for a project, service call or temporary assignment. A workers’ compensation policy should be reviewed before work begins outside the states shown on the policy.

Contractors should tell Ford Agency:

• Every state where work is currently performed
• States where work is expected during the policy term
• Whether employees are hired in another state
• Whether an employee is permanently based elsewhere
• How long out-of-state projects are expected to last

State workers’ compensation requirements differ. Do not assume a Virginia policy automatically satisfies every obligation in another jurisdiction.

What affects workers’ compensation pricing?

Workers’ compensation premium and eligibility may be influenced by:

• Employee classifications
• Estimated annual payroll
• Employee count
• Owner and officer treatment
• Subcontracted work
• Work performed at heights or below grade
• Geographic territory
• Prior losses
• Experience modification
• Safety programs and hiring practices
• Available insurance markets

The least expensive initial estimate is not always the lowest final cost. Accurate payroll, classifications and subcontractor records can reduce surprises when the policy is audited.

Workers’ compensation is part of a larger program

Workers’ compensation does not replace the other policies a contractor may need. A coordinated contractor insurance program may also include:

• Contractor general liability insurance
• Commercial auto insurance
• Tools and equipment coverage
• Commercial property or business owners coverage
• Commercial umbrella insurance
• Contractors pollution liability insurance
• Contractor surety bonds

What to send Ford Agency

Useful information for a workers’ compensation review includes:

• Legal business name and entity type
• Owner, officer, partner or LLC member information
• Detailed descriptions of all work performed
• Employee count by job duty
• Estimated annual payroll by employee duty
• States where employees perform work
• Annual subcontracted cost
• Subcontractor certificates when available
• Current workers’ compensation policy information
• Currently valued loss runs when requested
• Experience modification worksheet when applicable
• Any written contract or project requirements