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Risk-Sharing

Work Comp Affidavit for Independent Contractors Effective 7/1/2015

Many cities have projects that small contractors would like to bid but have been unable to do so. These smaller contractors were not previously eligible to bid on these projects as they did not carry Workers’ Compensation coverage. SD law allows sole proprietors to opt out of the requirement to carry this coverage. Many cities required the contractor to carry this coverage in order to protect the city in the event the contractor may be injured while completing the work.

The 2015 SD Legislature passed a new law to help alleviate this issue. The law will go into effect July 1, 2015. HB1105 is titled “An Act to provide for an affidavit creating a rebuttable presumption that a person is not an employee for purposes of workers’ compensation…” Following is a basic overview of what this means and how it may affect you.

If you hire someone who is a sole proprietor as an “independent contractor” to do work for your city, and they do not carry workers’ compensation insurance, you can ask them to sign an affidavit which would protect the city from a work comp claim if this individual is injured while working on a city project. Three criteria must be

met: 1) They are an independent contractor, not an employee; 2) They are a sole proprietor and 3) They

do not have any employees and therefore are not required by law to have work comp insurance. This law applies only to work related injuries and workers’ compensation coverage. All other insurance coverage would still be required.

Prior to beginning work on the project specified in the affidavit, the affidavit will need to be signed by both the city and the independent contractor. The contractor will need to verify that there are no employees, that the contractor is not required to carry workers’ compensation coverage, and that the contractor meets the criteria as stated in the Exempt Status Fact Sheet. The city and the contractor will retain copies of the affidavit, as you do with all other insurance certificates.

When would a city use this? In the event you have a small single project, such as replacing a small section of sidewalk and you have a local individual who wants to do the work. The individual does not carry work comp coverage, he has no employees, he does not have family members working with him, and he supplies his own tools and equipment; he may qualify under this law. The city would need to have the affidavit completed in lieu of obtaining a certificate of workers’ compensation coverage.

This applies ONLY to workers’ compensation coverage; however, as the city would still need to obtain proof of any other required coverage. Another example would be for a longer term contract, such as janitorial services. Again, the contractor will need to verify that he has no employees, he does not have family members working with him, and he supplies his own tools and equipment.

This law is not perfect. It does not protect the city if this contractor brings an “employee” to work with him and that employee gets injured. By SD law, he is required to carry work comp coverage on ANY employee, even if they are temporary, seasonal, part-time, a family member or friend. It doesn’t matter in the eyes of SD work comp law. If they are injured, and if the “independent contractor” doesn’t carry the work comp coverage, then your city may be at risk to pay the claim. The only way to completely protect the city is to require all independent contractors working on a city project to carry workers’ compensation coverage, including sole proprietor coverage, and provide a certificate of work comp insurance. Please keep in mind that per the statute, you are not required to accept an affidavit of exempt status as a substitute for a certificate of workers’ compensation coverage.

The Department of Labor/Division of Insurance has promulgated the rules, the procedures and documentation for filing the affidavit of exemption. You can access the rules, affidavit and Exempt Status Fact Sheet through a link on our website at www.sdmlwcfund.com.

As with all legal matters, please consult your city attorney before entering into any agreements. We will update you as more information becomes available. As always, be sure to call our office if you have any questions regarding this new law. We will be happy to assist you.

Brad Wilson, CIC, AIC, SDWCS Administrator for SDML WC Fund Insurance Benefits, Inc. 605-334-7252

Ladene Bachtell, CPCU, AU, CIC, SDWCS Account Executive Insurance Benefits, Inc. 605-334-7252