Check out the video below to hear from Chris Grassi, MEM’s Premium Consultation Manager, as he shares what you need to know about certificates of insurance and independent contractors.  

Know your state laws 

Each state sets its own work comp requirements. Know what these requirements are for each state you work in – or plan to hire subcontractors from.  

Many general contractors make a critical mistake. They think that if a subcontractor isn’t required to carry their own work comp insurance, they are exempt from liability. However, this isn’t the case. 

Are you liable for injuries to subcontractors? 

A general contractor can still be held liable for any injuries a subcontractor sustains while working on their project. This is true even when a subcontractor isn’t required to carry work comp coverage. 

For example, a Missouri business owner hires a subcontractor to complete some plumbing work on his job site. The subcontractor doesn’t have any employees and isn’t legally required to get his own work comp coverage. If he’s injured on the job, then the business owner could still be held financially responsible for their injuries.  

Protect your business: Always request proof of insurance 

To protect your business, always request a Certificate of Insurance (COI) from any subcontractor you hire — even if they don’t have employees and aren’t legally required to carry coverage. This certificate shows they have work comp coverage, minimizing your liability risk. 

If your subcontractor doesn’t have coverage and gets hurt on the job, you, as the hiring contractor, could be responsible for their medical expenses and lost wages. 

Why should subcontractors carry workers compensation coverage? 

Even if a subcontractor isn’t legally required to carry work comp insurance, it’s often a good idea to do so. Why? 

• Many businesses won’t hire subcontractors without proof of insurance. 

• If an injury occurs, work comp can protect both the subcontractor and the hiring contractor from costly medical bills and potential lawsuits. 

Businesses that frequently hire subcontractors may also include work comp coverage as a standard requirement. Without proof of coverage, subcontractors may find it harder to secure work. 

The post Hiring Subcontractors: Do You Need Workers Compensation Coverage?  appeared first on MEM.

As costs continue to rise, many business owners are looking for ways to save money. They want to ensure their expenses reflect their priorities.

Workers compensation insurance is a legal requirement for most businesses. As a result, it’s an expense that comes up for review each year, in the form of an audit. Payroll and employee classification play an important role in this process. Reviewing your records for accuracy is a simple way to ensure you’re paying the right premium for the coverage you need.

Listen to this episode of the WorkSAFE Podcast, or read the show notes below.

How does payroll impact work comp premium costs?

Payroll and employee classification codes (also called class codes) play an important role in how premium costs are calculated. A class code reflects how risky a job is. The riskier the role, the more premium, per $100 of payroll, for that role costs.

Each year, an auditor reviews work comp policies for accuracy. They help determine what payroll is included for that policy period, and consequently, how much premium is owed beyond early estimates. To calculate this, auditors need accurate payroll records. According to Austin, details make a huge difference.

Payroll in multiple states

Each state maintains different rates for different types of work. If an employers has employees working in multiple states, then it’s important to keep separate records for each one.

Classification matters

Separating payroll by class code is essential. This is an especially vital task for businesses with multiple types of roles in the industry, such as construction.

“The NCCI rules will allow us to divide up what the employees are doing in many types of construction,” Austin explained. “But if we don’t have the records to do that, we can’t divide it. And that can result in a big variance in the policy premium if that’s not done.”

Payroll exclusions

Austin points out that, depending on the state, some types of payroll are excludable. For example, certain types of overtime, paid holidays and vacation, and gratuity. Excluding these amounts saves the insured money.

“A third of the overtime is excludable. Tips are excludable. But if we can’t find the tips amongst the records, we can’t take them off,” she explained. “So accurate detailed records are very important. They don’t have to be fancy. They just have to be detailed enough for us to find the information that can help the insured save some money.”

Accurate records help save you money

An experienced auditor helps find cost savings and calculate premium accurately. “The auditor’s goal is always to get the correct premium for the policy period. We like to make sure that we dot our I’s and cross our T’s. We’re auditors at heart, so we like when things are neat and tidy,” she explained. “And we don’t want to have to throw everything in the highest rated code or the highest rated state.

Underreporting payroll hurts rather than helps

Saving a little money tempts some business owners to underreport their payroll. However, lower payroll doesn’t always mean lower costs. Underreporting payroll often leads to an adjustment at the end of a policy year – and the discovery that enough premium hasn’t been paid. This means owing more premium, which can be an unhappy surprise.

Options for seasonal businesses

Some carriers offer payment options. These benefit seasonal businesses, like landscaping or snow removal. For example, programs like Pay as You Go enable policyholders to pay their policy premiums during seasons when they have higher payroll and more money coming in. For auditors like Austin, the smaller the difference between what a policyholder owes in premium and what they have paid, the better.

Setting up the right systems for your business

Setting up a system for keeping records doesn’t have to be complicated. The most important thing is creating something that works for you. Austin recalls a policyholder who once kept his payroll books in a tiny spiral notebook, tucked in the front of his overalls. She used it to complete his audits.

“It doesn’t have to be fancy. It doesn’t have to be the latest thing. As long as the auditor can find what they need out of the system and it works for the business, that’s what’s important.”

Make sure your actual and reported payroll are as close as possible

First and foremost, Austin recommends ensuring your actual and reported payroll are as close as possible. “If you’re reporting that you had $2 million dollars in payroll to the to the federal government, and your payroll totals are that you’re reporting are only a million dollars, that’s probably not right,” Austin points out. Comparing your numbers to a quarterly Form 914 tax return or any unemployment tax assessments is a useful measurement.

Account for subcontractors

Subcontractors, or any contract laborers, make a big difference in an audit if they are uninsured. An insured subcontractor, or one who has their own Certificate of Insurance, isn’t included in overall payroll.

But those without one need to be included – and employers are on the hook for any on-the-job injuries they experience. Leaving them off payroll can result in a large deficit during an end-of-term audit – and added premium costs.

Set aside funds if you experience a boost in payroll

If a company experiences an increase in business, then there is a good chance they’ll need some extra help. Adding additional payroll throughout the year will likely result in some additional premium costs. Austin advises that employers in this situation set aside some funds in anticipation of that additional expense. This helps avoid financial surprises later.

Auditors take on the role of coach

For auditors and policyholders alike, details matter. They mean the difference between paying a little more – or paying a little less. “I always joke with my customers that I’m the crazy person in front of you at the grocery store using all the coupons,” Austin joked. “If I can find a discount in the result and in the rules, I’m going to use that.” She recommends a few key tips for employers:

1. Partner with your insurance agent. Insurance agents play a role in matching clients with the right work comp carrier. Their knowledge about your business needs comes in handy during an audit.
2. Track different kinds of payroll. Exclusions save you money. Keeping track of them allows your auditor to find and take advantage of key deductions.
3. Work with insured subcontractors. Many industries outsource labor. If contract laborers aren’t insured, covering them falls to you. Where possible, prioritize working with those who have an authentic Certificate of Insurance. Alternatively, some states allow for state affidavits.

The post Work Comp Payroll: How Keeping Great Records Saves Money appeared first on MEM.

Why COI fraud is serious 

Creating a fake COI isn’t just wrong—it’s illegal and can be charged as a felony. Some businesses or subcontractors might fake certificates to avoid following the law, win contracts, or skip paying for proper insurance. Partnering with a company, contractor or subcontractor using a fake COI can leave your business responsible for work-related accidents, injuries, or claims. Before any work begins, it’s important to take time to verify the COI. 

How to spot a fake Certificate of Insurance 

1. Look at how it appears. A real COI should look neat and professional, with straight lines and clear formatting. If it looks like a photocopy or seems altered, it could be fake. 

2. Check for consistency. The font type and size should be the same throughout key sections like the producer, insured name, policy number, and certificate holder. If the fonts don’t match, it’s a warning sign. 

3. Pay attention to spelling mistakes. Fake COIs often have spelling errors. For example, instead of “MEM,” a fake COI might list another name like “M.E.M. Insurance” or other slight variations. These little errors are a sign the document could be fake. 

4. Check the lines. If the lines on the document look crooked or faint, that could mean it’s been tampered with. Crooked or unclear lines are a big clue that something isn’t right. 

5. Review the policy number. Each insurance company has its own format for policy numbers. If the number doesn’t match the format you expect or looks altered, investigate further. 

What to do if you think a COI is fake 

1. Verify coverage. Use tools like the National Council on Compensation Insurance (NCCI) or state websites to check if the policy is real. You can search by the company’s name, tax ID, or address. 

2. Track the policy. Many websites let you track the policy. This way, you’ll get an email alert if the policy is canceled or changed. 

3. Get expert help. If you’re still unsure, talk to your insurance agent or our team at MEM. We can help you confirm whether the COI is legitimate. 

Stopping COI fraud is all about staying alert and protecting your business. Before any business or subcontractor is allowed to complete any work, take the time to carefully check documents, use verification tools, and work with trusted insurance agents. These steps will help you avoid unnecessary risks and keep your business protected. 

At MEM, we’re here to support you. If you need help verifying COIs, contact our Customer Care team at 1.800.442.0593. Together, we can ensure your business stays safe from fraud and liability. 
 
Our Special Investigative Unit is dedicated to reviewing claims with details that just don’t add up. If you suspect fraud in your workplace, report it right away by calling 1.800.442.0592 or through our online form. 

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