The House Insurance Built
Risk Management for Builders & Contractors

Chapter 2: Understanding Construction & Contracting Insurance Policies
Part 5: How Do My Insurance Needs Change When I Hire Employees?

As a sole proprietor or independent contractor, you know what it takes to keep yourself safe on the job. But when your business grows and you hire help for your construction and remodeling projects, you take on the responsibility of keeping your employees safe, too.

According to the Occupational Safety & Health Administration's Commonly Used Statistics page, this is no small challenge. In 2012, out of 3,945 worker fatalities in private industry, 775 of those deaths were construction workers (or 19.6 percent).

Though it may be impossible to plan for every situation, there are some insurance policies that can protect your business and offer your employees the coverage they deserve. So let's look at some of the insurance needs you may take on once you become an employer.

Workers' Compensation Insurance

Workers' Compensation Insurance is the foremost way to ensure your business doesn't lose profits every time an employee is hurt on the jobsite. And if you are a roofer or a carpenter, you have all the more incentive to carry this coverage.

OHSA reports that roofers and carpenters are the most susceptible to serious workplace injuries due to falls or slips. Let's look at those injuries in terms of cost. According to OSHA's "Business Case for Safety and Health: Costs" article…

  • From 2005 to 2007, the average cost of a lost-time claim for roofers involved in a fall from an elevation was over $106,000.
  • Per claim, approximately $36,000 went toward wage-replacement benefits, while $70,000 was for medical care.
  • During the same three years, the average cost of a lost-time claim for carpenters involved in a fall from an elevation was nearly $98,000.
  • In each case, approximately $30,000 went toward wage-replacement benefits, while $68,000 was for medical care.

In a nutshell, occupational injuries cost your business big time in terms of lost time, work, and money. Can you imagine paying these expenses out of pocket if one of your workers fell from scaffolding? The cost of their medical expenses alone may be enough to put you out of business. And in most circumstances, it would be your legal responsibility to cover that cost.

That's why most states require that employers carry Workman's Comp Insurance, though the laws vary depending on where you live. Most states even have special Workers' Comp laws for construction professionals.

For example, Arkansas's laws mandate that you carry coverage if you have three or more employees (of any tax status). But if you are a contractor or subcontractor, you must carry coverage if you have only one other employee. (For a complete guide to Workers' Comp regulations, check out our resource, Workers' Compensation Insurance Laws by State.)

The Benefits of Workers' Compensation Coverage

Other than helping you comply with your state's laws, your contracting business can benefit from a quality Workers' Comp plan. Your coverage can help pay for…

  • Medical expenses associated with your employees' occupational injuries, such as immediate medical attention and ongoing treatment.
  • Foregone wages while your employee recovers from an occupational injury.
  • Disability, funeral, and dependent support payments if an employee is fatally injured or disabled.
  • Legal fees (through the Employer's Liability Insurance portion of your policy) if an employee sues your business for its role in their injury.

Most states allow sole proprietors to cover themselves under their policy. So if you suffer an on-the-job injury, you can collect the same benefits as your employees would.

Extending Your Policies to Include Key Employees

As you build a team of talented contractors, you may need to extend your other policies to cover the work they do on behalf of your company. For example, you may need to include your employees under your General Liability policy so they receive the benefits of your Completed Products and Operations coverage.

Affordable Care Act (ACA) and Your New Staff

So what does the Affordable Care Act mean if you're a small-business owner who now has employees? As we mentioned earlier, you're required to carry healthcare coverage for yourself, but according to, you don't have to provide health insurance for your employees if you have fewer than 50 full-time equivalent (FTE) workers.

If you do have 50 or more FTE employees, you may be subject to the Employer Shared Responsibility Payment (ESRP) sections of the law. Whether or not you are subject to the ESRP, you can purchase a healthcare program for your employees on the SHOP Marketplace.

Next: Chapter 3: Tips for Finding Small Business Insurance

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