What is a certificate of insurance (COI) and why am I being asked to provide one?

A certificate of insurance is a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. More specifically, the document lists the effective date of the policy, the type of insurance coverage purchased, and the types and dollar amount of applicable liability (Definition from Investopedia).

If you are being contracted to perform a job (i.e. construction, plumbing, etc.) you may be asked to provide a certificate of insurance. This will prove to your client that you are covered in the event of an incident or claim. Depending on the type of job you are providing, the client will ask for proof of various policies. The two most common policies that are required are General Liability Insurance and Workers’ Compensation Insurance. Proof of General Liability will show that you are insured in case any damages arise from the work you provided to the client. The client is interested in Workers’ Compensation insurance in case any of your employees are hurt on the job on their property.

In addition to a certificate of insurance, you may also be asked for various endorsements including Additional Insured (AI), Waiver of Subrogation, Loss Payee, just to name a few. Additional Insured endorsements are the most common; a client may ask to be “named as additional insured”. This means that the company you are working for will be covered in the event of a claim occurring from your work. Insurance carriers can either provide a Blanket Additional Insured endorsement, which covers any client noted on a certificate of insurance, or a Specific Additional Insured endorsement, which will name the specific company on the endorsement itself.

Reasons to Use an Insurance Broker

CONNECTIONS: Brokers have access to many different insurance carriers and they can shop around for the lowest price. Carriers know that brokers are shopping around with many other carriers so they try to offer the most competitive quotes. Insurance carriers will offer brokers lower rates so they will refer more business.
 
KNOWLEDGE: Brokers are licensed professionals who know and understand the insurance industry 100%. They know the pros and cons of each policy and exactly what policies and coverage you need to protect your company. 

SERVICE: Brokers work to understand your specific needs and can help you decide which policies are best for your company. If you are unhappy with your insurance carrier, your policies can be easily moved since the broker is not dedicated to any specific carrier.

PRIORITIES: Big insurance companies can be hard to get a hold of, insurance brokers are dedicated to customer service and client relations. You are a broker’s top priority.

Are PEO’s Financially Beneficial for Small and Mid-sized Businesses?

In today’s economy everyone is focused on price vs. value and getting the most of their money; A decade ago, PEO’s were more focused on their HR services than the pricing. PEO’s have had to adapt to this change and have found a way to make programs much more affordable.

Here is an explanation of what a PEO actually is and what it can offer:

A PEO offers a bundled program that may include payroll processing, workers compensation insurance, complete HR services, payroll tax collecting and reporting, group health insurance, risk management, and comprehensive legal compliance. To utilize a PEO program, the PEO must process your payroll and provide your workers compensation insurance, all other services (as listed above) can be used at your discretion.  

You are probably thinking to yourself, how can a PEO be competitive in today’s market with all of these extra services provided? That is a great question because traditionally a business is only going to endure costs for what is required or necessary. Surprisingly enough, PEO’s can provide a wide variety of these combined services for less or equal to the premium you pay for workers compensation alone. These programs come in handy for mid-sized companies who have employees who are focused on processing payroll and providing HR services when they can be utilized in other departments that may be more vital to your business.

Another great perk you get with a PEO program is you have NO AUDITS at the end of the year. Since you are processing your payroll with the same company that is providing you your workers compensation insurance, you are paying as you go so there is no need for an audit. This takes away the added stress of owing more money at the end of the year. PEO’s generally do not charge down payments or deposit as well! A PEO program stands by the fact that they can truly allow the client/business to focus on what they do best which is the trade they specialize in and allows the PEO to take care of the rest.

Replacement Cost (RC) vs. Actual Cash Value (ACV) for Commercial Property

Replacement Cost and Actual Cash Value are coverage options that refer to different ways your Property Insurance Policy will cover your building and/or the contents within the building in case they are damaged or lost in a covered risk. Your building and most of your belongings will decrease in value over overtime, so consider these elements when purchasing coverage to protect your business property!

Actual Cash Value is considered basic coverage on Commercial Property policies where your building and contents are replaced with items of like kind and value minus depreciation. In other words your property would be covered for what you might expect to get if you sold it at an online auction, garage sale, or other sales event. 

• For example, if your building was damaged in a covered peril, your property insurance policy would then pay the actual cash value of your building before the loss. This would work the same way for your building’s contents. If you had a 6 year old refrigerator that was worth $1,100 when you bought it, but only worth $300 at the time of the loss, then your policy would replace it with a refrigerator that is worth $300 at that time, or give you the $300 in actual cash. This coverage generally costs much less then the Replacement Cost Coverage option.

Replacement Cost Coverage is more common than Actual Cash Value. If your building and/or building contents are damaged or lost, then your policy will pay to replace your property or repair damages with materials of similar kind and quality without deducting for depreciation. This type of coverage is key for business owners who want their property replaced or repaired to its original state. 

• For example, if your 6 year old refrigerator was damaged and needed replacement, your policy would then provide you with a new fridge of equal quality with out depreciation.

Keep in mind that depending on the real estate market at the time of loss, Replacement Cost might be worth less then Actual Cash Value for your building. Although depreciation has occurred, sometimes the increase in property values can create a situation where actual cash value of your building may exceed the cost of replacing the building with similar kind and quality.

Employee vs. Independent Contractor

Do I have to pay Workers Comp if they are properly classified as a 1099?

As most business owners know, they can hire people in two ways, either as an independent contractor (otherwise known as a 1099) or as an employee.

Employers oftentimes improperly classify their employees as independent contractors for financial benefits such as dodging payroll taxes, avoiding minimum wage requirements, overtime, or rest break rules, and by avoiding reimbursing expenses for performing certain jobs. One of the most common reasons employers label a worker as an Independent Contractor instead of an employee is to avoid covering an employee under “workers’ compensation insurance”. How a worker is classified determines the employer’s responsibility under the Fair Labor Standards Act. Due to the rising misuse of classifying workers as independent contractors, the IRS has stepped up the enforcement of the Fair Labor Standards Act and have developed a 20 point test to determine an employment relationship vs. an independent contractor relationship. Follow this link to review the 20 factors on how to evaluate your worker and their classification.

There is no set definition of the term “independent contractor” but here are some points that might help you distinguish what type of worker you have:

-       Independent Contractors are considered to be self-employed and subject to “self employment taxes.”

-       Independent Contractors control the manner and means by which contracted services, products, or results are achieved. The more control a company has over an employee and how their work is performed, the more likely the workers are employees, not independent contractors.

Here are some factors to consider when comparing a 1099 to an employee (given from the Department of Industrial Relations):

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal

2. Whether or not the work is a part of the regular business of the principal/alleged employer

3. Whether the principal or the worker supplies the instrumentality, tools, and the work space

4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers

5. Whether the service rendered requires a special skill

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision

7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill

8. The length of time for which the services are to be performed

9. The degree of permanence of the working relationship
10. The method of payment, whether by time or by the job
 

Do I owe workers compensation premium on independent contractors?

This question can be answered on a case by case basis; it depends on the situation of the worker’s employment and the job that is being performed.

Most carriers will ask for proof of workers compensation from the independent contractor. If the 1099 does not have any employees then they are not required to have workers compensation insurance. In that case the carrier will ask for proof of payment or paycheck stubs from two or more other sources of income.  If you have provided proper documentation and both the IRS and your insurance carrier deems your worker as an independent contractor then that worker does not need to be included on your workers compensation coverage.

Be sure to check with an insurance broker on how your current workers compensation carrier classifies independent contractors. If your carrier deems your 1099 as an employee, they will bill you premium on every cent you paid to the worker for the length the policy was active.

Here is another web site to help guide you in the right direction.

http://www.irs.gov/newsroom/article/0,,id=173423,00.html

Or if you have any further questions and would like to speak with someone directly, contact us at (818) 735-7600.