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Workers’ Compensation for Construction Contractors

Spring 2022 is upon us and the construction industry in Minnesota continues to move in a healthy direction. Construction and landscaping projects have begun to pick up again with workers and subcontractors consequently returning to the workforce.

This is a good time to make sure you have an up-to-date workers’ compensation insurance policy in place. Most businesses can work with an independent insurance agent to buy coverage through private insurance companies, but some businesses with high levels of risk will need to buy coverage through the assigned-risk pool. According to Minnesota state law, every employer must get workers’ compensation coverage. There are few exceptions to this law. For example, a business that only works with subcontractors is exempt from Minnesota’s mandatory coverage. Exceptions, however, are commonly misunderstood. This can leave businesses open to hefty fines and lawsuits. Sometimes a subcontractor is considered an employee by law, leaving businesses liable.

It’s never a good idea to guess if your business is exempt. If you’re unsure if your business needs mandatory coverage, contact an insurance agent to help answer your questions. An insurance agent can also provide proof of coverage. Proof of coverage is a formal document that helps businesses prove they have workers’ comp coverage. Also known as a certificate of insurance, the document can include details about what and who is covered under a business’s policy.


Let’s dive in a bit more to what workers’ compensation involves!


Workers’ Compensation in Minnesota


Workers’ compensation coverage provides benefits to employees if they suffer a work-related injury or illness. It can also help protect employers from employee lawsuits. Work injuries include the following:

· traumatic injuries

· occupational diseases

· repetitive-type injuries

· qualifying mental injuries


In Minnesota, workers’ compensation can provide the following benefits:

· partial replacement of lost wages

· help covering an employee’s medical costs

· finding vocational rehabilitation


It’s important to remember workers’ comp doesn’t cover every type of injury. For example, workers’ comp doesn't provide benefits if an employee:


· gets sick or sustains a personal injury outside of work;

· is intoxicated at the time of the accident; or

· intentionally injures themself in a workplace accident.


Premium Calculation


An insurance company uses different factors to come up with workers’ comp rates. This can take into account the following aspects of your business:

· payroll

· industry

· employees’ type of work

· claims history


Bear in mind that the construction industry is generally a higher risk to employees. Long hours, physically demanding work, and unsafe work conditions can easily shoot workers’ compensation premiums up.


When policy premiums are calculated, they are usually based on a payroll estimate amount at the start of the policy period. As the policy approaches the renewal date, this is when the actual payroll numbers will be taken into account and a revised premium will be calculated based on actual payroll amounts for the expiring policy term.


Minnesota requires insurance companies to audit a majority, if not all, of its policies. Keep in mind that if your policy expires, your insurance carrier still has the right to audit you. One of the main benefits to a workers’ comp audit is that it makes sure your coverage and premium match. This is important because it means you won’t be paying too much for your workers’ compensation coverage.


Preparing for a Workers’ Compensation Audit


During a workers’ compensation audit, the following will get verified: your company’s payroll, that job postings were accurate, and that all subcontractors hired during the period were reported. Audits look at your payroll because your workers’ comp premium is partly based on the amount of compensation paid to your employees over a policy term. The audit can be conducted over the phone or in the office. The amount paid includes money and benefits your workers have received. This can be a confusing and frustrating process, but provided you prepare and keep accurate records, the process should be relatively straightforward.

Your premium also depends on job classifications. These classifications help show the amount of risk your workers face. So, if the audit finds job roles have changed at your business, you may receive a different premium.

When reporting your payroll, be sure to include any overtime payments employees receive. This will ensure your payroll record is as accurate as possible.


Be sure to set aside funds each year to prepare for any premium increases, especially if your business is seeing growth.


The more time that companies invest in ensuring policies accurately cover business needs and comply with state requirements, the easier the audit process will be.


At the end of the audit, the auditor will provide an assessment with a premium adjustment, usually due upon receipt. The amount of the adjustment depends on whether your payroll amounts increased or decreased from the initial estimate during the policy period.


The Bottom Line


Growth in the construction industry is common these days, especially if your company is seeing enough financial success that you take on more employees. When it comes to the workers’ compensation audit process, planning is essential. Set some money aside and be sure to exercise due diligence and ensure proper bookkeeping practices are upheld. Doing this may help avoid unexpected costs brought about by discrepancies between actual payroll amounts and the initial estimated payroll amounts.


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