# Avoiding Worker's Comp Insurance?



## offshoretreeze (Mar 12, 2013)

As I understand it, officers of a corp are ineligible for WCI, would guess the same applies to partners of an LLC. 

Curious whether anyone runs their business as a climber & groundie duo (Corp or LLC) to avoid the high cost of WCI? If so, how's it working out?


----------



## rmh3481 (Mar 12, 2013)

Your going to have to research your State Laws. Do you have an Attorney for your business?

You can use sub-contractors. You will need written documents to protect yourself so it would be best to consult an Attorney.


----------



## ducaticorse (Mar 12, 2013)

offshoretreeze said:


> As I understand it, officers of a corp are ineligible for WCI, would guess the same applies to partners of an LLC.
> 
> Curious whether anyone runs their business as a climber & groundie duo (Corp or LLC) to avoid the high cost of WCI? If so, how's it working out?



Owners/partners have the option to opt out, they are not ineligible. A friend of mine has a businesses with him and his uncle, they are both partners and are therefore exempt from having to carry WC. The only problem with this is that in this day and age, the majority of customers don't give a fahk whether or not you are legally exempt from having WC, they want you to have it anyway. My friend thought he was all slick circumventing the law, until he started getting denied on all his bids because he didn't carry WC even though technically he wasn't required to. The best thing to do, (and you didnt hear this from me) is apply for the min coverage of WC available (based on payroll projections) and then don't pay yourselves an actual pay check past what you signed up on WC for. When you get your end of the year audit, you'll be within the minimum threshold, and not have to pay a ton back to the agency. This way, you have coverage to show your clients, and you aren't paying through the nose. Now I know CA has one of the highest rates in the US and that it borders on the absurd, so I do not know what your min is there. But relativey speaking, the min WC coverage here in MA is an easily dealt with expense, and pays dividends in the long run by how many more jobs you will be able to pull with having it. 

In this situation, you'd consult an accountant, not an attorney


----------



## offshoretreeze (Mar 12, 2013)

rmh3481 said:


> Your going to have to research your State Laws. Do you have an Attorney for your business?
> 
> You can use sub-contractors. You will need written documents to protect yourself so it would be best to consult an Attorney.



No experience hiring subcontractors...is a contractor's licence required to hire them? 

I know in other lines of work, if you hire someone as an "independent contractor" (guessing that's different than a sub) you can get in hot water if they don't actually qualify as such. For example, if you pay someone as a 1099 independent contractor (not taking taxes out, etc) BUT they show up when you tell them, you provide tools, etc. they are actually considered an employee. 

Been 15 years since I hired a lawyer...unfortunately it sounds like that nice run is coming to a quick end. Thanks for the info. 

Aaron


----------



## offshoretreeze (Mar 12, 2013)

ducaticorse said:


> Owners/partners have the option to opt out, they are not ineligible. A friend of mine has a businesses with him and his uncle, they are both partners and are therefore exempt from having to carry WC. The only problem with this is that in this day and age, the majority of customers don't give a fahk whether or not you are legally exempt from having WC, they want you to have it anyway. My friend thought he was all slick circumventing the law, until he started getting denied on all his bids because he didn't carry WC even though technically he wasn't required to. The best thing to do, (and you didnt hear this from me) is apply for the min coverage of WC available (based on payroll projections) and then don't pay yourselves an actual pay check past what you signed up on WC for. When you get your end of the year audit, you'll be within the minimum threshold, and not have to pay a ton back to the agency. This way, you have coverage to show your clients, and you aren't paying through the nose. Now I know CA has one of the highest rates in the US and that it borders on the absurd, so I do not know what your min is there. But relativey speaking, the min WC coverage here in MA is an easily dealt with expense, and pays dividends in the long run by how many more jobs you will be able to pull with having it.
> 
> In this situation, you'd consult an accountant, not an attorney



Great point--one that never crossed my mind. Customer hears "no WC" and just walks. Can't blame them--they'd need to find out how your business is structured to determine whether you were legal or not. Seems like a solid workaround--thank you! 

Aaron


----------



## ducaticorse (Mar 13, 2013)

offshoretreeze said:


> No experience hiring subcontractors...is a contractor's licence required to hire them?
> 
> I know in other lines of work, if you hire someone as an "independent contractor" (guessing that's different than a sub) you can get in hot water if they don't actually qualify as such. For example, if you pay someone as a 1099 independent contractor (not taking taxes out, etc) BUT they show up when you tell them, you provide tools, etc. they are actually considered an employee.
> 
> ...



Licensing varies from state to state as far as doing business is concerned. 

The sub vs employee is always a gray area as far as the gov is concerned, but common sense usually applies here. If you are looking to pay people that help you out regularly, and you control their own schedule and supply tools and instruction, they are probably going to be viewed as an employee.... If you are hiring a company or an individual who is doing occasional work for you, and they provide their own equipment and know how, AND they are fully insured entity operating under either a SP LLC SCORP etc, they are probably a sub as far as the gov is concerned. Now, one thing you nneed to be aware of when paying these "subs". If they do not carry liability and WC, your own ins co is going to adjust your premiums to cover the payroll and job scope for your uninsured "subs" at the end of the year audit. IE, if you pay out 100K to uninsured subs over the course of the year, be prepared to bend over and let your ins co have their way with your A-hole....

Here are the perimeters of reporting thresholds regarding paying subs and casual labor direct from my accountant using made up numbers for an example..... Good luck!!!

If the payments to any individual are less than $600.00 then you do not have to report the wages to the IRS by filing a 1099MISC (box 7 nonemployee compensation). You can still claim the total wages paid on your personal taxes (schedule C) or corporate taxes (form 1120) as a casual labor expense even if you are not required to report the wages to the IRS. For example: If you paid 3 people $550 each in the calendar year then you would not have to report any of it to the IRS or issue 1099s but you would still be able to claim a casual labor expense of $1650 on your taxes.

If any individual received $600 or more then you need to issue them a 1099MISC with the total wages paid and file a copy with the IRS and also file a form1096 which has the consolidated information from all the 1099MISCs that you have to file (even if you only have to file 1). For example: If you paid 2 people $600 each and 1 person $550 then you would have to file 2 1099MISCs (1 copy for you, 1 copy for the recipient, 1 copy for the state, and 1 copy for the IRS (red copy goes to IRS), 1 form1096 with the combined information ($1200.00), and you would be able to claim $1750 as a casual labor expense on your taxes.


----------



## 2treeornot2tree (Mar 13, 2013)

ducaticorse said:


> The best thing to do, (and you didnt hear this from me) is apply for the min coverage of WC available (based on payroll projections) and then don't pay yourselves an actual pay check past what you signed up on WC for. When you get your end of the year audit, you'll be within the minimum threshold, and not have to pay a ton back to the agency. This way, you have coverage to show your clients, and you aren't paying through the nose. Now I know CA has one of the highest rates in the US and that it borders on the absurd, so I do not know what your min is there. But relativey speaking, the min WC coverage here in MA is an easily dealt with expense, and pays dividends in the long run by how many more jobs you will be able to pull with having it.
> 
> In this situation, you'd consult an accountant, not an attorney



that right there is borderline insurance fraud!

offshoretrees
WC is a cost of doing business. Just like gas, buy and get over it. I cant believe anyone would even ask a question like this on a forum.


----------



## ducaticorse (Mar 13, 2013)

2treeornot2tree said:


> that right there is borderline insurance fraud!
> 
> offshoretrees
> WC is a cost of doing business. Just like gas, buy and get over it. I cant believe anyone would even ask a question like this on a forum.



Well, he isnt committing fraud if he's an officer with no employees.... Someone told me once that WC premiums are something absurd like 50% of payroll.... If that is anywhere near true, I don't blame him for legally circumventing the law. But like I said, not carrying WC eben if you aren't required to carry it, won't get you very far in this business...


----------



## 2treeornot2tree (Mar 13, 2013)

ducaticorse said:


> Well, he isnt committing fraud if he's an officer with no employees.... Someone told me once that WC premiums are something absurd like 50% of payroll.... If that is anywhere near true, I don't blame him for legally circumventing the law. But like I said, not carrying WC eben if you aren't required to carry it, won't get you very far in this business...



It is fraud. You get workers comp audits every year. If you only claim some of the money you pay yourself, then thats fraud.


----------



## ducaticorse (Mar 13, 2013)

2treeornot2tree said:


> It is fraud. You get workers comp audits every year. If you only claim some of the money you pay yourself, then thats fraud.



Settle down and read what I wrote. There is the hypothetical situation I spoke of, and there is the situation he is currently in. No one is committing any fraud.


----------



## Pelorus (Mar 13, 2013)

It is not so hypothetical. I have contacted WSIB (Ontario) twice in recent years trying to get this figured out. My situation being that I'm a sole proprietor, registered business. No regular employees, but occasional casual labour on an as needed basis. Most of my work involves (sub)contract climbing for other companies, or having one of them (other tree services) help me on my jobs.

I have a 3rd party (private) disability insurance policy, as well as commercial liability ins. Last year I paid the premiums for a similar didability ins policy for the fellow who helps me the most, even though that is sometimes only 1X or 2X a week even in the "busy" months.

WSIB's answer to this is that I'm a Schedule 2 company, and I do not (legally) have to carry WSIB coverage! Seriously. Does not having it cost me lost work? Certainly. But not so much with residential work that has been the mainstay of my biz. As long as I can show clients that I have legit disability and liability coverage, they are satisfied.


----------



## Carburetorless (Mar 15, 2013)

offshoretreeze said:


> Great point--one that never crossed my mind. Customer hears "no WC" and just walks. Can't blame them--they'd need to find out how your business is structured to determine whether you were legal or not. Seems like a solid workaround--thank you!
> 
> Aaron



They don't care that you don't have WC, they're only concerned that they'll have to cover your hospital bill if you get hurt.

WC isn't the only way to cover yourself, your insurance policy, Personal Injury, and Medical Expenses covers you also.

You do have insurance on your business; Don't you?


----------



## ducaticorse (Mar 15, 2013)

Carburetorless said:


> They don't care that you don't have WC, they're only concerned that they'll have to cover your hospital bill if you get hurt.
> 
> WC isn't the only way to cover yourself, your insurance policy, Personal Injury, and Medical Expenses covers you also.
> 
> You do hance on your business; Don't you?



You're completely failing to understand how a work related injury is dealt with.


----------



## offshoretreeze (Mar 15, 2013)

Carburetorless said:


> They don't care that you don't have WC, they're only concerned that they'll have to cover your hospital bill if you get hurt.
> 
> WC isn't the only way to cover yourself, your insurance policy, Personal Injury, and Medical Expenses covers you also.
> 
> You do have insurance on your business; Don't you?



Have to disagree with your first statement. 

When I hired a tree service, the only bids I considered included proof of WC & Gen Liability policies. My priorities were: #1: don't get sued. #2: have the job done correctly & on time. #3: do it at a reasonable cost. 

I carry WC, Gen Liability & Commercial Auto. I also have health insurance (thanks to my wife). 

Aaron


----------



## Carburetorless (Mar 15, 2013)

ducaticorse said:


> You're completely failing to understand how a work related injury is dealt with.



Perhaps you could enlighten me?


----------



## Grouchy old man (Mar 16, 2013)

Carburetorless said:


> Perhaps you could enlighten me?



Your private health insurance carrier will not pay for treatment for work related injuries. That's why you have WC. If you get around that by being an owner and not being required to have it you only hurt yourself. Your customer or whoever you are working for is liable for your medical costs and any disability. I think this whole thing about owners and officers of a corporation not being required to have comp and disability came from the thinking that they don't do the actual work, they sit in an office behind a desk.


----------



## 2treeornot2tree (Mar 16, 2013)

offshoretreeze said:


> Have to disagree with your first statement.
> 
> When I hired a tree service, the only bids I considered included proof of WC & Gen Liability policies. My priorities were: #1: don't get sued. #2: have the job done correctly & on time. #3: do it at a reasonable cost.
> 
> ...



When you hired a tree service? Dont you own a tree service?


----------



## B Harrison (Mar 16, 2013)

I can not cover myself (contractor/ owner) with a real WC policy.
I have checked into it, we could cover employees, and my dad (owner) when he ran the business covered me.
In NC waivers are no good, no matter who draws them up, someone is liable and courts or lawyers will go to the biggest company first if everyone is a sub.

You can get a "ghost" policy that will have your name on it if you are owner operator, but your not covered, if the policy cost $1100 a year its just paper nothing more. When we had WCI it was paid quarterly based on present year sales and then (maybe audited) but we weren't after the first year.

WCI law/ rules whatever change per state.


----------



## treeclimber101 (Mar 16, 2013)

Speaking about comp , my audit gripe saved me 500.00 , so I guess the squeaky wheel does get the oil :hmm3grin2orange:


----------



## Grouchy old man (Mar 16, 2013)

B Harrison said:


> I can not cover myself (contractor/ owner) with a real WC policy.
> I have checked into it, we could cover employees, and my dad (owner) when he ran the business covered me.



Is your business organized as a sole proprietor or a corporation? Here in NY I think the laws are similar. If you incorporate (and I believe excluding an LLC) you can be included. The reason why a proprietor can't get (or wouldn't want to pay for) coverage is because the entire profit from the business would be considered his salary. If you are an officer of a corporation, even though you think you own it, you work for that corporation (a corporation is a separate entity under the law) and draw a salary that the WC rates can be based on. You may take a draw or disbursement at the end of the year but that is not considered salary.

This is from the NY Workers' Compensation site:



> *For-profit Corporate Officers with Employees: Coverage Requirements for Penalty Purposes*
> Any executive officer of a corporation who owns all the shares of stock and holds all the offices of the corporation and has employees is automatically included in the corporation's workers' compensation insurance policy (Employees). This officer may choose to exclude him/herself by filing an exclusion form with his/her insurance carrier at the time the policy is written or renewed. This document, Form C-105.51 , is available on the Board's website.
> 
> Any two executive officers of a corporation who each own at least one share of stock and between them own all the shares of stock and hold all the offices of the corporation and have employees are automatically included in the corporation's workers' compensation insurance policy (Employees). One or both of the officers may choose to exclude themselves by filing an exclusion form with their insurance carrier at the time the policy is written or renewed. This document, Form C-105.51 , is available on the Board's website.
> ...


----------

