Let's start off with the basics. Connecticut law states that if have employees or uninsured subcontractors, you are required to carry worker's compensation to protect not only those employees, but you as the employer. If your business fails to carry worker's compensation insurance and you end up with an injured or sick employee, you are responsible for those damages and you open yourself up to penalties form the state for not obtaining worker's compensation coverage.
If you are a sole proprietor or a single member LLC, you are not required to carry worker's compensation insurance. You will automatically be opted into the worker's compensation plan if you obtain a policy, but you can sign an exclusion form which will be recorded with the state insurance department.
How is worker's compensation rated? - Very simple. It is calculated on (Rate X Payroll). There are hundreds of classifications depending on what industry you are in. If you employ a bunch of office staff that sits at a desk all day, those employees are probably assigned a 50¢ rate per $100 of payroll. However, if you are in a more dangerous classification like carpentry, you are probably near a $28 rate per $100 of payroll. You may also have various different classifications in your particular business. Again, it is not about how many employees there are, it is about what the total payroll is for a specific class or group.
How are employers rated? - As an employer, each year the minimum and maximum base payroll for your specific classification will change. If you want to be included on the worker's comp policy as a sole proprietor the base payroll for year 2020 is $69,100. So even if you make less than that amount, that is where you start. Officers or LLC members start at $70,100. The maximum payroll amount you can be rated on is $140,400. If you take home $1,000,000 dollars in pay, $140,400 is the maximum payroll you can be rated on.
Subcontractors - In many cases if you work as a tradesman under a general contractor you have probably been requested to show you have a policy for general liability AND worker's compensation.
Despite the fact you have no employees, that GC is protecting himself. Let's say Joe GC is a big general contractor. He has his own worker's compensation policy and a general liability policy. He hires you to do carpentry work on a big project. If he does not obtain a certificate of insurance for both WC and general liability from you, every dollar he pays you could end up on his worker's compensation payroll after an audit is completed. If he paid you $50,000 the auditor will see you as Joe GC's employee. So take the $50K he paid you times the rate for carpentry which is around $28... which equals $14,000 in worker's comp premium on Joe GC's policy. Ouch.
What if I Don't Complete my Audit? - If you are audited at the end of your term you have to respond to it. The carrier has a right to verify that the reported payroll in each classification listed on a policy are accurate at the end of a term. They can also verify if any subs you paid had their own insurance at the time they completed work for you. By not completing an audit, you or your business will be marked for non-compliance. If you try to obtain a policy again in the future you will be blocked from all carriers until every outstanding audit is resolved. Any outstanding bills that are owed to the insurance company can also be sent to collections.
What is a MOD? - A worker's Comp mod is a credit and debit system. If you have had a worker's comp policy with over $5,000 in total premium for 3 or more years, you will develop a mod. The less you have comp claims, the more favorable your rating is. If you have multiple comp claims in a period of time you will be surcharged. The mod starts at 1.0. If you are below 1.0 it equals a credit. If you are above 1.0 it is a surcharge.
You can calculate how a mod affects your premium like this: Class Code X Experience Mod X (Payroll/$100) = Total Premium
Minimum Premium Policy - If you are a one man contractor, you will be looking to obtain a $1,501 policy through the assigned risk plan while excluding yourself. This will satisfy the workers comp requirement from your GC. At the end of the year if you have no payroll, your policy will get reverted to an office clerical classification and the annual rate will reduce to approximately $350. You will be refunded the difference.