The Colorado Division of Workers’ Compensation is vigorously investigating whether contractors on construction sites are properly carrying workers’ compensation insurance and verifying coverage of any subcontractors. In Colorado, all employers are required to carry workers’ compensation insurance for their employees. Any person, company or corporation contracting any work out is construed to be an employer. C.R.S. § 8-41-401. This does not apply to independent contractors who have formed corporations or partnerships, or to individuals who have filed a form with the Division and have rejected coverage. It also does not apply to owner occupied residences, but does apply to owners of any rental properties and vacation homes.
However, particular to construction work, every person performing construction work on a construction site shall be covered by workers’ compensation insurance, and a person who contracts for the performance of construction work on a construction site shall either provide workers’ compensation coverage for, or require proof of workers’ compensation coverage from, every person with whom he or she has a direct contract to perform construction work on the construction site. C.R.S. § 8-41-404(1)(a). There are few exceptions. They include independent contractors, sole proprietors, corporate officers or partners in a limited partnership who have formally waived coverage C.R.S. § 8-41-404(4)(a)(III – V), and site owners, general contractors, or other person who is not a party to the contract for the construction work to be performed who are involved solely as a result of the person’s ownership interest or general supervisory role in a construction project. C.R.S. § 8-41-404 (1)(b).
Failure to comply is punishable by fine up to $250 per day for the initial offense and $250 or more per day for subsequent violations. C.R.S. §§ 8-41-404 (3) & 8-43-409 (1)(b). The Director has an interest in pursuing fines as they are credited to the Colorado Uninsured Employer Fund.
Therefore, each contractor is to verify that each subcontractor has workers’ compensation coverage or waiver of coverage. The contractor should request the certificate of workers’ compensation coverage and retain a copy of it for their records.
Owners/corporate officers may reject workers’ compensation coverage. If a subcontractor rejects coverage and has no employees, this will comply with the statute. However, to properly reject coverage they must provide written notice of rejection to the carrier on a Division form by certified mail. If there is no insurance company, the notice shall be provided to the Division by certified mail. Oftentimes, the rejection of coverage is never sent to the carrier or to the Division and will not be effective. Therefore, one should also request a copy of the rejection of coverage and keep a copy on file to comply with the statute.
This can be difficult, if not impossible, when subcontractors also hire other subcontractors of which the general contractor may not be aware. Not only does the contractor owner subject themselves to possible penalties for failure to verify coverage for each and every subcontractor on the construction site, but they could be found a statutory employer should an injury occur and there was no workers’ compensation coverage by the subcontractor. The contractor could therefore be responsible for covering the claim anyways, unless workers’ compensation coverage was properly waived. However, this in and of itself can be problematic because if there is no workers’ compensation coverage, the injured worker could then pursue a personal injury claim.
One option to comply with the statute is the parties can agree that part of the contract price shall be withheld for worker’s compensation premiums. C.R.S. § 8-41-404(2). Additional viable options are plans that cover the entire project. OCIPs (Owner Controlled Insurance Programs) are paid for by the project sponsor or property owner, and CCIPs (Contractor Controlled Insurance Programs) are paid for by the lead contractor on the construction project.
Please feel free to contact any of the attorneys at BGAM Law if you have any questions regarding compliance with the requirement to provide proof of coverage, how to properly reject coverage, and/or any issue involving workers’ compensation.