New workers’ comp law raises lots of questions

A new law requiring that corporate officers who are “actively engaged in on-site work on any construction site” carry workers’ compensation insurance has insurance agents and small contractors scratching their head.

The law, which goes into effect Sept. 14, ended a longtime exclusion — some would call it a loophole – that allowed three officers of a corporation or limited liability corporation from the law requiring coverage. Sole proprietorships and partnerships had no such exemption in the first place, so they will be unaffected by the change.

The law change was tacked on as an amendment to a bill pertaining to workers’ compensation and state contracts, without much discussion, But now, weeks before implementation, officials from the state Insurance and Labor departments are attempting write rules to answer several questions raised by the new law.

For one, what does it mean to be “actively engaged” on a site? Would visiting the site to talk to a foreman count? How about having a trailer on the site, but not doing any of the actual construction work? What if the trailer is located a block away? How do you define “construction site”?

Whatever the rules say, insurance carriers’ interpretation of them will be pretty strict, predicts the president of Independent Insurance Agents and Brokers of New Hampshire.

“We are recommending to our members to get coverage for all people. We may change that once we get guidance out of the Department,” said Bob Nash, the organization’s president.

The state Labor Department will take the tack that those whose work requires them to be at a site -supervisor or worker – should be covered, but not those who just stop by to inspect a site once in a while, said the agency’s counsel, Martin Jenkins.

But there are lots of cases in between

“I’ve been fielding a lot of calls from a lot of people,” Jenkins said.

But if a dispute arises, the matter might be adjudicated before the Insurance department or in court, not by the Department of Labor, Jenkins said, and it will hinge on the law and legislative intent — not on the rules of an administrative agency.

The good news is that anyone who has coverage doesn’t have to change anything. The Labor Department position will be that only insurance contracts written after Sept. 14 will operate under the new law, Jenkins said.

Small contractors, like home builders and renovators, will be particularly affected.

Take Liberty Hill Construction, a small renovation firm in Bedford that does anywhere from $550,000 to $700,000 worth in sales. The company’s owner and president, Greg Rehm, has no doubt that he actively engages on the job. He often puts on the siding and takes his hand at the backhoe. The concern is what rate he will be covered at. He currently pays a compensation premium for his sole employee who is not an officer of the company at the construction worker rate – a hefty $25 for every $100 in salary, even though the employee also does sales, which would only cost 72 cents per $100, or clerical work, which is 52 cents per $100.

Rehm who was exempted, and carries his own individual disability policy, will now be required to carry his own coverage, but what would he be classified as? As an officer, he spends more time doing officer work than his employee, yet if he is injured, it’s more likely to happen when he is actively engaged.

“I’m not looking forward to my next audit,” he said. “I’m beginning to hate workers’ compensation. And I am the one who documents time and doesn’t lie and say they are clerical or that everybody is an independent contractor.”

If Rehm does have to pay a quarter in compensation premium for every dollar of his salary, does it make sense to cut his salary and decrease his profits? That would mean a larger business profits tax, but that may be more than offset with a reduction in compensation premiums as well as the business enterprise tax, which taxes salaries at a smaller rate.

This, said Nash, might be just one of the unintended consequences of the new law. He predicted that insurance agents and contractors will probably be back next year to address these issues.

“This is going to hurt the small contractor,” Nash said. “It might eliminate LLCs. Many of them might as well be sole proprietors, and the additional cost might drive some of them out of business all together,” he said. – BOB SANDERS

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