April 6, 2017    |    By

One of the unique features of the construction industry is the fluctuating labor demands. The Monthly Labor Review identifies a range of factors responsible for this phenomenon, such as seasonal demand, weather/climatic conditions, local customs and economic conditions. As a contractor, this allows you to save on costs you would incur by being in full-time operations, such as paying of employee salaries. However, the same conditions creating the up-and-down movement of labor demand may cause you to cross paths with the California labor laws as well as the federal ones.

Potential Workers’ Compensation Issue

What is workers’ compensation?

Workers’ compensation is an insurance cover that provides medical benefits and wage replacement to workers who acquire injuries in their line of duty. Workers’ compensation operates on the basis that the injured employee must relinquish the right to sue an employer for the tort of negligence.

Section 3700 of the California Labor Code requires all employers to provide workers compensation coverage to their employees. However, the intricate nature of employment involving general contractors (GC), independent contractors and subcontractors raises many grey areas for workers’ compensation coverage.

Cost of a workers’ compensation policy

The cost of a workers’ compensation policy is dependent on various factors including the laws in your state, type of business, number of employees and the risks associated with your type of business.

In California, most workers’ compensation insurance providers use the Workers Compensation Insurance Rating Bureau (WCIRB) classification system to determine the amount of premium you should pay. This classification system categorizes employees according to their specific duties and the risks involved with these jobs.

Riskier professions will often attract higher costs of workers’ compensation than the less risky ones. In a construction industry, like yours, expect to part with a lot of money towards workers’ compensation coverage because of the high risk of injuries involved.

Managing workers’ compensation audits

Alliance Insurance Services, an Arlington-based insurance provider, notes that one of the biggest frustrations employers encounter is the prospect of having to pay additional premiums than they budgeted. The trick to avoiding such an outcome is to ensure that the company records are in place before a payroll audit. As aforementioned, payroll audits – also known as premium audit – seek to establish a business’s actual premium for workers’ compensation, in comparison to the estimated premium.

Providing accurate information to the primary auditor will help him or her make correct assumptions and a subsequent fair premium rate. Before he or she arrives, scrutinize your original workers comp policy to understand the logic behind the calculation of the premium. Evaluate the rates, classification codes as well as payrolls to ensure that the projected payroll corresponds (or nearly) to the actual payrolls at the end of the year.

Independent contractors or subcontractors with a policy in place should provide you with a certificate of insurance proving that they have their own workers’ compensation insurance. You should avail this certificate during the audit.

Provide coverage to subcontractors or independent contractors who do not have their own workers’ compensation cover. An auditor will include the subcontractor’s compensation in the audit upon discovering that the subcontractor did not have coverage when performing the task.

Handling minor claims

Multiple claims – however minor – will increase your premium to pay because most insurers will conclude that your business has a high risk of occupational accidents. The Workers Compensation Board (WCB) describes a minor injury or accident as one that simply requires first aid and causes the injured employee to miss only one day of work.

Whether an employer or insurer paid for a minor injury, Section 5401 of California Labor Code requires all insurers to report – to the WCIRB – the expenses for all claims that involved the provision of medical care, including first aid treatment. You must still report these minor claims even if the injured employee does not fill in the workers’ compensation claim form.

Reporting these minor accidents could however impact your modifier and subsequently, the premium rates for the next year. When these minor claims pile up, the perception is that your job site is a risky place where dangers of injuries lurk around. An insurer who notices this will charge you higher than before.

Payroll Demands

On time and accurate payroll

Pay all your employees for their wages earned in a timely and accurate way in accordance with the Fair Labor Standards Act (FLSA) and federal laws on labor. Ensure that your workers take their breaks as stipulated and document the same. If possible, establish automated time reporting software that will provide these benefits:

  • Collecting data to help you pay employees accurately and promptly;
  • Monitoring your compliance with the necessary federal and state government regulations; and
  • Maintaining supporting documentation

Your employees, whether FLSA nonexempt or exempt, should record the number of hours they have worked for every workday. This includes the time in and time out to allow you to calculate the remuneration for those that have worked overtime. Enlighten your employees – including subcontractors – on the specific paydays of your company and pay periods. Post this information in a location where all employees can easily access and read it.

Managing multiple unemployment claims

The Employment Development Department (EDD) of California reveals that California processed 3.8 million unemployment insurance (UI) claims – the highest in the country. These stats show that your business is not immune to UI claims.

Multiple unemployment claims do not bode well for you because the amount of your tax rate depends on the number of unemployment claims filed against you in the past. The more claims you incur, the more you will pay towards UI.

It is therefore important to minimize UI claims against your business. After the EDD mails you a copy of the Notice of Unemployment Insurance Claim, your objective should be to prove that the job loss was based on employee misconduct. In proving misconduct, you can mention that the employee failed to fulfill duties, such as coming to work as per schedule, refraining from harassing colleagues and avoiding theft.

Prevailing Wage & Certified Payroll Reporting

An article by Nancy Smyth in 2017 notes that prevailing wage and certified payroll reporting is a big headache for most contractors. This headache is related to the requirement that all contractors working on government-funded construction projects must submit certified payroll reports and pay high wages.

In California, you are to submit these records to the Labor Commissioner via the electronic reporting system of the Department of Industrial Relations (DIR). You can do this by either keying in the information directly into the online system or uploading an XML file with the relevant information.

The requirement to submit these records applies to every contractor as well as subcontractor. These include sole proprietors and business owners who do not pay themselves an hourly salary or receive paychecks. If you fit in this category, DIR advises that you provide the following information:

  • Name, address and SSN/FEIN;
  • Work classification for prevailing wage work;
  • Hourly rate for the classification;
  • Number of work hours
  • Expected pay from the work

California Safety Regulations on the Jobsite

Preparing for unscheduled OSHA visits

The National Safety Council (NSC) notes that OSHA inspections are fairly low considering that it undertakes an estimated 100,000 inspections annually. However, do not be complacent because you might receive an unexpected visit from an OSHA inspector. Surprise OSHA visits result from the following circumstances:

  • Referrals from another entity, such as a government agency;
  • Employee complaints about a violation;
  • Specific catastrophes and fatalities; and
  • Follow up inspections

You have the right to ask for the OSHA officer’s ID, which includes his or her name, office and photo. If still not convinced, call a local OSHA office to confirm the information provided by the inspector. You can also deny entry to an OSHA officer although NSC warns that OSHA can easily obtain a subpoena or warrant to access your facility.

Avoiding the unpleasantness of a surprise OSHA visit depends on how well you are prepared beforehand. Establish an inspection team that will help other workers prepare and manage the inspection. Train your employees regularly on what happens during an OSHA inspection to mentally and physically prepare them in case of a surprise visits. Your OSHA 300 logs – which record all work-related illnesses and injuries – should be up-to-date.

IIPP requirements

A written Illness and Injury Prevention Program (IIPP) is a must-have for all employers in California. This document identifies workplace hazards and documents the measures to stop these hazards from occurring. Under Section 1509 of the California Labor Code, all contractors must keep a copy of their IIPP at their job sites at all times. Even though the contents of an IIPP vary according to workplaces, a typical one for a contractor contains these topics:

  • Meetings and inspections;
  • Emergency and evacuation plans;
  • Response to hazardous material spill;
  • Hazard communication;
  • Housekeeping
  • Training;
  • Personal protective equipment (PPE);
  • Portable power tools;
  • Confined space entry;
  • Safety organization and responsibilities;
  • Welding;
  • Pressurized cylinders;
  • Ventilation; and
  • Fall protection

In addition, you should post a written Code of Safe Practice at a conspicuous location in the workplace and develop a safety data sheet (SDS) that describes every product used at the job site.

Providing proof of coverage to regulatory agencies

You will be unable to get a contractor’s license, renew an active one or maintain it if you cannot provide proof of workers’ compensation coverage. The Contractors State License Board (CSLB) of California decrees that all contractors must provide a certificate of workers’ compensation insurance, which proves that you provide workers’ compensation cover to your employees. Failure to do this will result in a suspension of your license or even a refusal to renew it.

You can obtain this certificate from your insurer who must have a license from the California Department of Insurance (CDI). The certificate must list CSLB as the certificate holder and provide the following details:

  • Your name and license number
  • Policy number
  • Effective and expiration date of the policy
  • Signature of an authorized representative of your insurer

California is famous for its employment laws, which facilitate a friendly and conducing working environment towards employees while being hard on employers. Due to the fluctuating labor demands in the construction industry, the tidbits of California’s labor laws might skip your mind – until you find yourself on the wrong side of the law, paying fines for violations. Understanding how the laws affect your line of business will spare you run-ins with the law as pertains to the aforementioned issues. Always look for the fine print, especially if you anticipate low seasons with fewer employees.

Make a great first impression at your next job interview.

This blog post is intended for informational purposes only and does not constitute legal advice. No attorney-client relationship is created between the author and reader of this blog post, and its content should not be relied upon as legal advice. Readers are urged to consult legal counsel when seeking legal advice.