A key component of a Workers’ Compensation audit is determining if a subcontractor is an independent contractor. A subcontractor is a laborer who is hired to perform part or an entire job for an insured on a contract basis. An independent contractor is a type of subcontractor who maintains a separate business. They are a person or business who provides services or goods to the general public and are paid via check, cash, or 1099. Independent contractors do not work regularly for one company and are not required to carry Workers’ Compensation coverage.

An Independent Contractor Statement FM-901 (ICS) is a test used by Frankenmuth Insurance to determine if a contractor is an independent contractor for Workers’ Compensation purposes. This form is not applicable to General Liability policies. The ICS must be filled out in its entirety and be updated annually as the status for the contractor may change. A copy of the ICS can be located in the Workers’ Compensation Policy Declarations. The rules for excluding an independent contractor vary by state. It is important to note the ICS is not an automatic exclusion; it is a test only and final determination is left to the carrier. If a contractor does not qualify for the ICS, a Certificate of Insurance indicating Workers’ Compensation coverage or a state exemption certificate is necessary for exclusion.

Statutory employees are often confused with Independent Contractors. A statutory employee is an individual who performs services in the course of the business hired and is paid directly by the insured. The statutory employee is paid via cash, check, or 1099 and does not have their own business for services rendered. Also, statutory employees are generally directed and controlled by the hiring business. If the contractor works regularly for one business or person and does not direct or control their own business, they are not an independent contractor.

For additional information on subcontractors please visit our Premium Audit Guide on our website, fminsdev.wpengine.com. For additional clarification, contact our Audit Team at extension 2586 or your Underwriter.