INSURANCE! Mad & Scared, Your Help Is Needed.

ncurls

We own a small residential framing company. I've been doing this for 15 years for someone else, and in June of last year went out on my own. We're doing this in Colorado, (Boulder/Denver area). I've never had any claims (thank god) and have been profitable enough to double my income and afford a down payment on a moderate house for the two of us.

As is standard here in Colorado, most of my guys are subs. They are independent contractors that come and go as the work comes and goes. Some of these guys make as little as $15/hr, and through last year, their general liability insurance was around $750 annually.

Well, I have a huge job coming up in just a few days and have hired a few extra hands. I sent them to our regular insurance guy only to discover that the general liability insurance for these $15/hr guys just went up to FOUR THOUSAND DOLLARS, which they obviously can't afford. I don't even pay that much (but uhem, the contract with my insurance company is up in 2 months!!) With some scrambling and my help, we found another company willing to insure them at $1600, and then today the insurance company said - oops, wait, just kidding. Here's your $1600 back, we aren't insuring you.

I am at a complete loss. I have literally no idea what to do. This will put me out of business. I can't pay my guys more than that, or I can't be competitive. I could hire them, but then my: a) insurance costs skyrocket, b) have to pay workmans comp which was quoted to me at $.18 on the DOLLAR in wages, and c)have to pay employment taxes. All of this makes it so I can't be competitive anymore. And puts me out of business by Monday.

Do any of you guys work in Colorado? How much do you pay in insurance? What companies (brokers and insurance direct) would you recommend I talk with? How do you handle this expense and stay competitive? Are you facing the same dillema?

If I'm not alone, we all should be RAVING ANGRY. This is going to put all of us little guys out business. Only big huge companies can survive the shuffle while the market corrects and construction expenses skyrocket. Then EVERYONE will go out of business b/c the homeowners won't be able to afford to build anymore. Even the wealthy ones.

Sorry for the rant, but I really need your help and advice.

Nick

Chris Johnson

Welcome to being a businessman...time to run your company like a company should be run.

Looking at what you were expecting as savings (by not buying proper insurance of workers comp. coverage) tells me why you were awarded the contract...you were the lowest bidder.

Suck it up pal...you will know better next time a big project comes around.

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Chris

farmboy555

I don't have a answer for you, but you think $0.18 is high? Get in the timber & logging bus. like me. It's $1.00 on a $1.00.

Susan Betz

18 cents on the dollar is not bad WC. $4000 a year doesn't equate to $4000 for a month or two. Taxes get paid whether it's out of your pocket or theirs.

Be a hardass and tell the workers that if they can't provide their own WC (or exemption), their own liability, and get 1099'd, then you'll hire them and figure those costs into the numbers. In other words, you'll hire them for $12 or $13 an hour.

Real subs have their own insurance and pay their own taxes. Employees don't.

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Fences of Distinction, Ocala, FL
http://www.fencesofdistinction.com

ncurls

Chris,

I run one of the best jobs around. I am never the lowest bidder, and on this job especially. I am hired because my guys are fast and do extremely top quality work. We work exclusively on high-end custom homes and most of my business is repeat. AND I run my business to what the industry here in Colorado demands and to what is practiced, accepted, and actually TAUGHT by the HBA here as standard. So your comments aren't helpful at all. Thanks for the waste of air.

Susan, I am seriously considering going down that path, although like I said earlier, it will most likely put me out of business. There are lots of guys and subs running around without insurance, so what ends up happening are guys like me that are trying to do things right end up competing with the rif-raf (we also have immigration challenges here, I am often bidding and losing against non-legal crews willing to work for 1/2 of what I'm paying my guys, and NONE of them have insurance). How do you lift yourself out of competing with that?

Nick

WarnerConstInc.

Thats life buddy, not trying to be rude that is just how it goes.

silvertree

Here (MN) we pay comp, we get audited. There are the people who follow the rules, and the ones that don't. It sounds like you've been lucky so far.
All states are different, but one thing is pretty clear, the old "these guys are my subs" way of hiring is pretty much over. Might be OK where you live, but I can't do that in Minnesota. I have to get bids from my subs, not pay them by the hour. We can fudge that a little, I mean a little. Good luck!

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Vote for Pedro
Kitchen, bath, St Paul remodeling
Minneapolis Remodel Blog
203K Loan Consultant Minnesota

thom

A bit humorous. You calling your competition rif raff while others are calling you the rif raff.

It sounds to me like you are cheating. It sounds like you pay guys as though they were subs even though they fit the legal description (IRS) of employees. It really doesn't matter whether they work for you steady or not, what matters is control and responsibility. If you have a couple guys working for you framing and you are paying them individually hourly, they are employees. That means you provide workmens compensation and liability insurance. That's the law, it's what responsible contractors do.

Several years ago I got fed up with the paperwork and went strictly subs. These are real subs, they carry workmens compensation on their employees, they cover their business with liability insurance.

Likely what's happening is that the insurance companies see that you are cheating and want no involvement.

finehomes

I'd have to agree with the above. Your insurance company is dropping you because they see you as a risk because you are cheating. If you are paying these guys hourly wages...they are NOT subcontractors. They are employees and they need to have workmans comp, you need to be paying taxes and doing proper withholding on them, etc. I'm suprised the insurance company hasn't outright just cancelled you. If you were here in Utah....you'd have been busted by the state and fined as they are cracking down on that big time right now!!!! Sounds like its time to buck up and run the business the right way!!!!

Chris Johnson

I guess I wasn't a waste of air...just honest

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Chris

Kgmz

Just did a quick read of the State of Colorado's, Colorado Workforce website.

Your laws are basically the same as ours, the states of Oregon and Washington.

Now from what I read your guys are not independent contractors, and I will bet they do not pay their own Workmens Compensation Insurance. Because at the wages you are paying, they really could not to afford to after having to pay for their own liability insurance. And if they really don't have their own WC insurance and you are not paying it, that would scare the hell out of me. Why, because if one of them was seriously injured where they could not work the rest of their life. You would lose in court with this independent contractor crap, and would have to pay them for the rest of your life. Does not sound like fun, and definitely not worth the risk of a few dollars saved now.



Now about your liability insurance.
First you should got to this website link below and type "construction liability" in the search box. This will bring up a few hundred articles from insurance business trade magazines, etc.

http://www.insurancejournal.com

A excerpt from one of the many articles at the Insurance Journal website:

Industry experts agreed that carriers are becoming tougher in their underwriting practices, scrutinizing on all levels before taking on large residential general contractors risks.
"Some companies want to write contractors involved in residential, but do no more than 25 percent to 30 percent general construction," Norman said. "They want the residential contractor who does at least 60 percent to 75 percent of their own work." Norman said that companies are more likely to write for a large general contractor if he or she does not "sub out" a lot of his or her work. "The more work that they do themselves, the better the opportunity of placing the coverage," he said.




As for your WC rate of 18¢ that is cheap. Our rates are based on a hourly rate, and you pay the same if it is a $10 a hour laborer or a $30 a hour lead. For wood frame building construction we pay $2.69 a hour, for excavation, road building, land clearing we pay $2.23 a hour, for sewer and septic construction we pay $1.69 a hour, for roof work construction and repair we pay $4.87 a hour.

finehomes

Just to give an idea here. I have NO Employees....and my general liability insurance is almost $1,400 a month!!!! I can only imagine what it would be if I had a few employees and had to be paying workmans comp too.

Since 1977

I see the sub title said "mad and scared" or something like it
The mad....cuz your buisiness is probably going to change to the way it should be ....and scared cuz the type of poker or in your case 'price of poker is going UP'
Maybe scared also as you see the swiftness an insurance company can cut off your plan.
Still not a swift as an employee who gets amnesia about 'just how is this supposed to work" when hurt.
Good thing is wasn't a state agency or what puttin 2 and 2 together......
Perhaps the insurance agent you called up suddenly with two referals for new-to-be-insureds figured what you were doing . I would be pulling the plug on the plan too.
We all battle the non insureds in the bidding arena....I can remember when we still did roofing here in Pa. the rate then was so bad I paid more in insurance per month than my house,truck and 2 kids in daycare!

Good Luck ......You'll re-configure,commit to some good employees and do bidness a new way!

I've seen alot
Since 1977

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"I thought I'd been everywhere man.....then I ended up here"

tinner666

Don't feel bad. Many of us have had that same reality check as we moved up into owning our own businesses. You'll adapt.
Put your employes on the payroll before the IRS catches up and you learn what 'expensive' really means.

You currently owe all their state and federal tax liabilities. Comp too, I think.
(Same for state.)

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Frank Slate Roof Repairs, Richmond, Va.

MarkNoV

:

Mark

DavidC

If you are trying to dodge your responsibilities as an employer than you are the riff-raff. But you can change as many before you have. You can get a lot of help in making the switch from a forum like this.

Good Luck
Dave

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www.CookContractingLLC.com

Trimcat

Where I wish the insurance company's would crack down is on the GC's who hire the one legal Mexican guy who somehow has insurance and speaks OK English and has an ARMY of uninsured illegals working for him. Here in TN, they have taken over new construction in exactly that manner. They have driven the money down to the point where it is not profitable to do business for guys who "want to do it right". Why does everybody turn their back on this problem? On top of that, for the most part they do HORRENDOUS work, and nobody seems to care. For me, I think I'm going to shift back into remodeling existing homes for people who don't want a bunch of non English speaking people running around their house pissing and sh*tting on the floor...... yes I have seen that MANY MANY times in new construction. The last job we were on had two tubs installed, and both had piles of sh*t in them when we arrived to trim the house. And seeing my crew is literally the ONLY white guys on the entire project, it's finally safe to point the finger without being called a racist. This country is going down the tubes folks. And we're sitting around watching TV and eating popcorn while it does. Time to wake up! They are coming to invade your town next I promise you.

Sorry to go off subject a little, but here in TN, it's the main reason for problems such as the OP lays out. You're forced down to their level if you want to compete as a sub. So you start doing things like the OP has done to try to stay afloat.

Any Season

Wow. That was a beating. But I agree with everyone on here. That aside, here is what I would do...

Get a leasing company, and hire employees instead of subs. The insurance companies and the IRS realize that for many years employees under the ruse of 'subs' was a great source of profit and they are trying to correct that. There is nothing wrong with something of a loophole but when its no longer there you have to adapt.

I took Sue Betz's advice a while back and sent all of my guys through a leasing company. It took a few weeks to get in the swing of it, but to be honest, I have no worries, my comp is always current and I never have to deal with the insurance companies because of the insulation the leasing co. serves as. Sure my per/week costs are a little higher but I don't panic when I get a $2-4000 bill for comp (bc I don't get them anymore). Also, it has forced me to manage my cash flow and accounting alot better and that has made all aspects of my business flow smoother.

You are where you are right now. What are you going to do about it is the question. Seems to be a good impasse for change in your biz.

Mike Finley

Thank you so much for all the great responses to somebody blaming "the system" for making them break every rule in the book and looking for sympathy. I can't tell you how sick it makes me feel to read stuff like that when I work in the same state, do everything by the book and am very profitable.

Great, great responses.

Any Season

That wasn't my point Mike