How Uninsured Subs Destroy General Contractors' WC Premiums
General contractors in South Carolina are paying for workers' comp coverage they do not know they have — on workers they do not directly employ. When you pay a subcontractor who does not have their own workers' comp insurance, SC audit rules require your carrier to treat that sub's labor as your payroll. This video explains how the trap works, why it is so common in SC construction, and exactly what to do to protect yourself.
Under South Carolina workers' comp rules, when a general contractor hires a subcontractor who does not have their own workers' compensation insurance, the GC's policy is treated as the backstop. At audit, the carrier's auditor will ask for certificates of insurance from every subcontractor paid during the policy year. For any sub that cannot provide a valid certificate showing WC coverage, the auditor adds that sub's labor cost to the GC's payroll and charges premium accordingly. This is standard NCCI audit procedure in South Carolina. A GC who paid $200,000 to uninsured subs could see a five-figure audit bill they had no idea was coming, because the premium on that labor was never built into their original policy estimate.
Not every certificate of insurance protects you from the subcontractor trap. A valid certificate must show: workers' compensation coverage specifically, not just general liability; coverage dates that encompass the period when the sub worked on your project; and the entity name on the certificate must match the name on the sub's contract. Ghost policies — where the only insured is an owner who excluded themselves — technically produce a valid-looking certificate but cover no employees. At audit, an experienced carrier may reject ghost policy certificates as inadequate. The safest approach is to collect certificates before work begins, verify that the policy covers employees not just the owner, and maintain a COI file organized by subcontractor and policy period.
The solution to the subcontractor trap is a systematic process for collecting and tracking certificates of insurance. Before any sub starts work, require a current certificate showing WC coverage and add your business as an additional insured on their general liability policy. Keep a log of all subs paid during the policy year with corresponding certificate dates. Before each audit, pull your sub payment records and match each payment to a certificate in your file. Any gaps should be addressed before the auditor arrives — either by obtaining a retroactive certificate or by setting aside premium reserves for the likely audit adjustment. A well-maintained COI file is the difference between a predictable audit and an unexpected five-figure bill.
It depends on your class code rate and the amount paid to uninsured subs. If you paid $100,000 to uninsured subs and your applicable rate is $10 per $100 of payroll, that adds $10,000 in additional premium at audit. Construction GCs with high rates and heavy sub usage can face audit adjustments of $20,000 to $50,000 or more.
A sole proprietor with no employees is not legally required to carry workers' comp in SC. However, if they work on your project and get hurt, your carrier may add their labor to your payroll unless you can demonstrate they are a true independent contractor. Many GCs require sole proprietor subs to carry a policy or execute a formal independent contractor agreement.
Yes. If you regularly use the same subs and they do not carry their own coverage, you can arrange for their payroll to be included under your policy. Your carrier will charge you the applicable rate for their work. This eliminates audit surprises but does increase your ongoing premium.
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