It is recommended best practices to obtain Certificates of Insurance documenting General Liability and Workers’ Compensation insurance coverage for all contractors performing repair, maintenance or other services such as landscaping, janitorial services, HVAC repair, etc while working in your service. If a contractor does not have Workers’ Compensation insurance then it is recommended to use prescribed forms from the Department of Insurance to establish and/or clarify an independent relationship between you and the contractor.
Form DWC-85 that may be used in agreement with “independent contractors” to establish an independent relationship and therefore exclude them from benefits under your workers compensation policy. To be eligible, contractors must meet the definition of “Independent” as described below. In most cases an independent contractor must have employees of their own unless work falls under the category of Residential and Small Commercial Contractors.
See below for more information. Also, additional information is available from the Texas Department of Workers Compensation http://www.tdi.state.tx.us/wc/employer/employers.html#factsheets
(Not Residential and Small Commercial Construction Contractors)
The Texas Workers’ Compensation Act specifically defines an independent contractor and allows parties to agree who is responsible for providing workers' comp on the independent contractor's employees. An independent contractor who meets the definition set by law and enters a prescribed agreement with the employer verifying the independent relationship is not eligible for benefits under the employer's policy, unless the parties agree otherwise.
In addition, the law clearly states that an insurance company is prohibited from charging a premium to an employer who carries workers' compensation for coverage of an independent contractor or an independent contractor's employees, without the parties' agreement.
This category applies to all other independent contractor relationships except for residential and small commercial construction contractors and motor carriers. This would include not only construction contractors, but any other situation where someone is working for a business as an independent contractor as defined in this section.
"General contractor" means a person who has undertaken to procure the performance of work or services, either separately or through the use of subcontractors. According to law, an insurance company may not demand insurance premiums from the general contractor for coverage of an independent subcontractor or its employees. However, see "Independent Contractors with No Employees" below.
"Subcontractor" means a person who has contracted with a general contractor to perform all or any part of the work or services that a general contractor has undertaken to perform.
The law states that an independent contractor and the independent contractor's employees are not employees of the general contractor if the independent contractor:
1. Is operating as an independent contractor
2. Has entered into a written agreement with the general contractor that evidences a relationship in which the subcontractor assumes the responsibilities of an employer for the performance of work
"Independent contractor" means a person who contracts to perform work or provide a service for the benefit of another and who ordinarily:
Form DWC-85 is used to verify the independent relationship and the intent of the parties to exclude the independent contractor from the general contractor's workers' compensation insurance. This form does not need to be filed with DWC or the carrier, but should be ready for inspection at audit time or upon request. In addition, the general contractor should obtain a certificate of insurance if the independent carries workers’ compensation insurance on its own employees.
If a person who is excluded from workers' comp coverage by a subcontractor agreement is found to be an employee of the general contractor, the person is deemed covered by the general contractor's workers' comp policy and is entitled to a refund from the general contractor for all amounts improperly deducted as premium.
* EXCEPTION: Independent Contractors with No Employees
One important exception relating to the use of DWC-85 should be noted. Independent contractors without employees are considered by law to be employees of the general contractor, and the general contractor is responsible for workers' compensation benefits for these individuals. The form should not be used for independent contractors without employees. The law provides two exceptions to this exception:
(1) real estate salespeople compensated solely by commissions are not covered under the real estate agent's workers' comp policy, unless coverage is specifically elected by the employer and the salesperson is named on the policy (see Section 406.094, Texas Labor Code), and
(2) independent contractors without employees, who perform work or provide a service for an oil or gas well operator, are not covered on the operator's workers' comp policy (see Section 406.123(h), Texas Labor Code), unless the two parties agree using form DWC-81.
Residential and Small Commercial Construction Contractors
This category applies only to construction contractors preparing to construct, constructing, altering, repairing, extending or demolishing:
Specific terms are defined as follows:
Form DWC-83 can be used to verify the independent relationship and make the parties' intentions clear. The form must be filed with DWC and the insurer within ten days of the date of execution. The hiring contractor keeps the original form. This agreement states that the subcontractor meets the definition of an independent contractor and is not an employee of the hiring contractor. If the agreement is properly executed and filed, the independent subcontractor is, as a matter of law, an independent contractor and is not entitled to workers' compensation coverage from the hiring contractor.
Subcontractors with no employees who meet the definition of independent contractor and execute a joint agreement are treated in the same manner as the subcontractors who do have employees.
The same form may be used to establish an employer - employee relationship so that the hiring contractor agrees to cover the subcontractor's employees. In this case, the parties may agree to allow the hiring contractor to deduct the cost of the workers' comp coverage from the contract price.
The agreement applies to all jobs between the hiring contractor and the independent contractor for one year after the filing date. A new agreement must be executed and filed at the end of each year. If the parties do not want the agreement to apply to a job subsequent to the joint agreement, DWC and the insurance carrier must be notified using form DWC-84.
To protect employees from being coerced into signing agreements that make them independent contractors, the law makes it clear that such a practice is a violation. A hiring contractor may not exert controls that would make a person an employee under common law tests and still consider them to be an independent contractor in order to avoid liability for workers' compensation. If a person is found to be an employee of the hiring contractor, the person is covered under the hiring contractor's policy and is entitled to a refund from the hiring contractor for all amounts improperly deducted as premium.
The law identifies specific activities that do not constitute the exercising of employer-like controls:
A 1994 decision by a DWC appeals panel demonstrates the importance of using and filing the DWC forms properly. The panel ruled that a painter injured on a residential construction project was an employee of the general contractor, not an independent contractor, because the painter was paid by the hour and was not free to hire helpers. In addition, the panel noted that the DWC-83 was not valid at the time of the injury because it was executed in March but not filed with DWC until September, three months after the employee was injured.
Herbert M Sheaner Jr Insurance
Sheaner Insurance, LLP
Dallas TX 75214
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