Friday, August 26, 2011

Are your subcontractors covered by worker's comp?

Hey, investors!
Guess what? Those subcontractors you hire to fix your rental or flip your house may not be independent contractors. They may actually be employees, even if they are subcontracted through your general contractor. You may have to pay the Department of Labor & Industries to cover workmen's compensation, should they happen to be injured on the job and file a claim.

I was just audited by the Dept of L&I myself; just a "courtesy" audit to help me set up my real estate brokerage correctly, and to understand state laws and regulations as they apply to employees, broker associates, and subcontractors of my business.

I did have two brokers affiliated with my firm at the beginning of this year, and knowing that the State of Washington requires real estate brokers to be covered by L&I, I had signed up for coverage. I also elected to sign myself up for coverage, as virtually everything I do is work-related. At roughly $30/month, it is about the least expensive accident insurance I can buy!

But back to those subcontractors. Here are the qualifying questions the State requires to be answered in determining their status with regards to employment and L&I coverage:

1. Are you hiring someone for more than personal labor? or are they bringing heavy equipment?
2. Are you supervising?
3. Do they have an established business of their own? There are seven separate tests to determine the answer to this question.

I was surprised to find that MOST of the people I considered to be subcontractors, would in fact be considered to be my employees by the State. That means that I would need to be reporting their hours quarterly and paying L&I for workers compensation. They are probably also eligible for unemployment taxes and benefits.

For more information on this topic, see "A Guide to Hiring Independent Contractors in Washington State," or contact the Washington State Department of Labor & Industries.

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