If you're a general contractor and you're using subcontractors in your business, you have to collect their insurance information. Otherwise, you will be paying their workers' comp insurance at the end of the year. And that can be thousands of dollars. It can be tens of thousands of dollars. It could be hundreds of thousands of dollars that you get penalized for not collecting the correct insurance information from your subcontractors. Hey, welcome back to the show. On this episode, we're going to be talking about insurance, insurance requirements. It's going to be a very short episode, but it's going to be important, especially if you're a brand new contractor or just starting out because insurance can definitely be one of those gotchas, especially whenever it comes time for doing your audit. And if you're brand new, less than a year old, you probably don't even know an audit's coming. And this might scare the crap out of you. So this is going to be a good, going to be good information for you to start learning and knowing now to make sure that you don't get screwed in the future. So if you don't know this, everyone who is a contractor, it does not matter what state you're in. And by the way, let me just say this as a disclaimer. This is for entertainment purposes. You should consult with an expert to make sure that they are giving you the correct information for your business and your state. All right, so let's get going. If you didn't know this, if you're a new contractor, if you, like I said, you're brand new, you have to have insurance, right? Now there's different types of insurance. There's workers' comp insurance, there's liability insurance, you know, vehicle insurance, things like that. So when it comes to specifically workers' comp, workers' compensation, meaning if someone gets hurt on a job, then the insurance pays for that, you know, for them to... To take care of that, you know, through your business, you have to have workers' comp insurance. And so here are a couple of things that people don't understand about workers' comp. I didn't understand this until, you know, really two or three years in, and I definitely didn't know that there was an audit coming. So some insurance carriers may not require an audit. Most do. And all an audit is, is that every year. usually at your like anniversary start date, like whenever you start the insurance, or it can be a certain month of the year for everyone. Again, it just depends on your state and insurance. But every, or I shouldn't say every, most insurance companies will audit your insurance at the end of the one year period. And that includes any subcontractors that you use. And that's the part that screws most people, especially if you're a new contractor, if you're a general contractor and you're using subcontractors in your business, you have to collect their insurance information. Otherwise, you will be paying their workers' comp insurance at the end of the year. And that can be thousands of dollars. It can be tens of thousands of dollars. It could be hundreds of thousands of dollars that you get penalized for not collecting the correct insurance information from your subcontractors. Okay. Now we'll get into some more of that details here in a second, but workers' compensation is a requirement if you have employees and if you're using subcontractors. Now in Indiana where I'm located, if you're a, you know, if you're the owner of the business, you can get what's called a workers' comp exemption. In other words, As the owner of the business, I can be exempt from having to have workers' comp. So if I'm a one-man operation, then I don't have to have workers' comp insurance on myself because I'm the owner. Some states have that, others may not, and there may be different requirements for that. I believe in Indiana, it's like a $25 a year certificate, you know, and you have to do it every year. Like you have to file for that exemption every year. If I hire a contractor who is a one-man show, He has to have the workers' comp exemption if he doesn't have workers' comp insurance. That is the same thing. So even though that subcontractor is a one-man show, and by law he may not have to carry workers' comp insurance, he has to have the exemption form or it doesn't matter. I will still get penalized for him not having that certificate. So they have to have that and they have to file for it. Now here's where it gets even messier. Let's say I hire a single, you know, a solar operator subcontractor and I hire him in March. That's the, you know, I hire him for a couple of jobs starting in March. The first job of the year is March. And then I say, hey man, I never got your workers comp exemption. And this is like maybe September. I realize it. He's like, oh, no, no problem. I'll get that. So he goes and files for it in September, right? Well, the certificate's going to have a date on there. That means that every job that he did from March until September, he is not covered by that exemption, which means I have to pay for it. I have to pay the difference of what that exemption coverage is for workers comp for him based on the type of work he's doing. So it's not backdated. It doesn't go backwards. So anytime you hire a subcontractor, you have to, you must, collect their certificate of insurance or what most people call a COI, you have to collect that COI before they ever do any work for you. Now, I get this. I've done it too. You got a job coming up. Your normal electrician is not available. You got to get somebody out there this week. You find an electrician. He's like, yeah, man, I can make it happen. I can be out there tomorrow, Thursday, whatever. And you're like, oh, thank man. Thank you for saving me. And you completely bypass the COI portion of it. the insurance requirement. So you don't collect that. Or you say, you got insurance, right? Oh, yeah, yeah, yeah, yeah. I got insurance, man. We're good. Okay, cool. Just send that over when you get a chance. Do they send it over to you? No. Do you have to follow up in like three months? Yes. Right now, if they have an office manager, if they're on top of their game, if their insurance agent does a good job, they will send that over to you. But you should not ever hire a subcontractor. And without getting their COI first, you have to have that. And on the COI, it has to have dates. There will be coverage. So if it expires, you know, maybe you hire them in, say, June, and their certificate of insurance expires in, again, September, right? I need to make sure that I'm reaching out to them in September to get a renewal COI for them. So for the purpose of an audit, you have to have That insurance, that COI that covers the dates, let's say your audit period goes from March to March, okay, and their insurance expires in June, then you'll have two COIs from them. You'll have one from last year June till this year June, and then you'll have one from this year June till next year June. So you'll have to have two COIs because it overlaps the dates that you have your insurance. Okay, so here's where other people get screwed. They hire a subcontractor. If they get the COI, no problem. They don't get the COI, the new one, when it renews. I don't know if you know this. Some contractors like to skirt the law as much as possible. And so they may go get insurance in order to start getting work for someone. but they don't renew their insurance because they can't afford it, or maybe they forget, or they don't want to pay for it, whatever. And so when you hire them, they're legal, but halfway through the year, they become illegal per se because they don't have the right coverage. And if you're not getting those COIs, then you're going to get screwed and you're going to have to go back and chase down every subcontractor. and try to find the COIs for them. If they're out of business, good luck, right? If they have an insurance agent who is not very helpful, good luck. So you have to make this a priority whenever you're working with subcontractors. It's not really their responsibility to make sure you get the COI. It's your responsibility to make sure you're receiving the COI. Now, some insurance agents, providers are really, really good. I still, to this day, every year, get a copy of one of my subs insurance or COI automatically in the mail. They just send it to me because as an insurance agent, they typically will have all of your general contractors or other people that you work with or work for. They will have all of their information. And so they know like, hey, my insurance just renewed. I need to send out a new COI. So these 15 general contractors that you work for, and they will do it automatically if they're actually a good insurance agent, which is, we'll get into that in a second about insurance agents. But specifically for insurance, you have to have workers' compensation and you have to collect that information from your subcontractors. If you don't have that during the audit, you will pay for their difference. There's no way around it. You will have to pay it, okay? You have to make sure that you're tracking their information. What I did, and this is a very simple system. I used Google Drive, Google Workspace for all my online Word, email, all that stuff, Google Drive storage. So whenever I would get a COI, I would put it into a folder. So I had a folder in my Google Drive that just said, subcontractor insurance. And then underneath that folder, I had folders for each contractor. So it could be plumbing, the plumbing guy, the electrician, the drywall guy, the painter, whoever it was. There was folders for each contractor. And then inside that folder, I would have the insurance. Now, another way you could do this is you could have folders, like you could have a folder that's like subcontractors, have the folders for the subcontractors, and then have subfolders in each contractor that's for like insurance, because maybe you want to track other information. So instead of putting it in an insurance folder, you just have it in a subcontractor folder. You have all your different subs in a folder for each sub. And then in each subs folder, you have another folder that says insurance. And then I would copy that COI. If it was mailed to me, I would digitally copy it and put that file in their folder. If they send an email, I just had to drop it into that folder. And I made sure that I had their information. Now, some project management softwares. like JobTread, they actually help you with this because it allows you to store that information in the software and it even can send out automated messages, reminders for the subs based on the dates that it expires, it will do it for you. So if you're using a software like JobTread, you're pretty much covered. You just got to make sure you set that up. If you're not using a software like JobTread or your software doesn't do anything with subs insurance, then you need to have your own little system. Now, here's what I would do. If you have no software and no way to automate that, all you have to do is whenever you get the insurance, you look on the insurance, the COI, and it will tell you expires November 21st, you know,2025. Perfect. I go into my Google calendar and I put, you know, a week before the expiration date, I put a note or a task. in my calendar that says, you need to collect a new COI for subcontractor X. And then I get that notification. So I don't have to think about it, right? I do that the second I get the COI. I don't get the COI and then they all do that later. No, I do it the second it's in my hand. or the second I read that email so I don't forget about it. Hey, just a quick timeout from the show. If you're a frustrated contractor who's dealing with low profit margins, stuck working on the tools every day, or doing free estimates for people who are never going to hire you in the first place, I invite you to my private contractor community, The Profit Club, where contractors just like you are adding two to three times more profit each year without producing any more jobs and finally getting completely off the tools to never do another free estimate again. So if you're ready to increase your profits, stop doing free estimates and get off the tools, then all you have to do is click the link in the show notes to learn more about the profit club and see how it can easily two to three times the cash in your pocket, give you a proven sales process that will convert more jobs with ease and get you off the tools once and for all. And the best part is you can do all of this without having to produce more jobs than you currently are. Click the link to learn more. Now let's get back to the show. Sometimes you have to foolproof your business from yourself. You have to actually put things in process to make sure that you don't screw it up. And so that was just my rule. The second I got their COI, I put it in my calendar that just said, so-and-so's, you know, COI is expiring next week. You need to collect a new COI. And that allowed me to call that contractor or email them or text them and say, hey man, I need to get a updated COI from you. Right. And then usually they would make it happen a week or so, you know, a few days, a week later. I get a message or a letter from their insurance agent. Guys, if you don't do this, you're going to get screwed. I mean, it's just, it's going to happen to you. You're going to get screwed. You can't trust people. You cannot just take your subcontractor's word. You have to make sure you collect that information. If they say, oh yeah, yeah, man, I got insurance. I'll send it over to you next week. No problem. They go do a thousand dollar job for you, a $5,000 job for you. You call them, hey man, I need to get that insurance. Oh yeah, I'll give it to you eventually. Turns out they never had insurance. They never did. And so now you're stuck. You will have to pay your portion of that based on how much money they did work for you. So it's all based on revenue, right? So the more money that you spend on a sub, the more you will be out to pay for that portion of it, okay? It's all based on revenue of that type of work. Now, here's the second thing I wanna tell you about insurance. It's all categorized based on what they do. So let's say you're a general contractor and you do multiple different things. Now, if your insurance agent is not telling you this from the get-go, you need to find a new insurance agent. Okay, and that's the third thing we'll talk about is insurance agents. But I'm just telling you right now, if they're not telling you this, you need to find a new insurance agent. All services in construction are broken down by different categories. The most expensive or one of the most expensive categories is roofing. It makes sense because it's a high risk job. You fall off the roof, you get hurt, right? Happens all the time. Therefore, that's a higher category of insurance. And so your insurance is going to, your workers comp insurance is going to cost more if you do roofing. But here's what they don't tell you, or at least the bad agents don't tell you. Let's say I'm a general contractor and I do like you know,10 roofs a year that I sub out, but the majority of my work is kitchen remodeling or the majority is, you know, building decks or whatever it is. If you don't tell them that you're doing multiple services, they automatically categorize you in the most expensive category, regardless of how much work you do. If you do one roofing thing, even a repair, if you do one repair, or you went and replaced the shingle on someone's house, you will have to pay the highest category insurance for workers' comp. And if you don't tell them that the amount of revenue that you collected was different, they will automatically put all of your revenue in the highest category and you will pay the highest workers' compensation. What you have to do whenever you get audited is you have to break out revenue per category. So going back to like, say I do one roof and it's a $5,000 job, a small repair or whatever. I have to break out that last year or whatever that period date was, I did $5,000 worth of roofing, but I did $500,000 worth of kitchen remodels and $50,000 worth of decks. I have to break out each different type of service because the insurance requirement is different depending on what you're doing. That's the thing that your insurance agent should be telling you from day one. And if they're not asking you when you sign up with them, what type of work are you doing? And what do you anticipate revenue-wise? Say you're a brand new contractor. You just started last week and you go to get insurance. The insurance agent, what kind of work are you going to do? You're like, I don't know. I really have no idea. I think I'm probably going to focus on decks, but I'm probably also going to do maybe some roofs and stuff. Well, you have to guess. You simply have to guess. Well, I think I'm probably, you know, maybe I'll do, I don't know, five decks, you know, maybe $50,000 or whatever in revenue on, I mean, on roofs. I may do five roofs. Well, you're guessing if you're brand new. And this is what the audit is for. What they're doing is they're taking your initial guess of how much workers comp or how much revenue you're going to have. And then at the end of the year, they're auditing you to see if that's what it was. So if you said. I'm going to do $50,000 worth of insurance or roof work at the end of the year. They say, okay, prove it to us. How much roofing work did you do? And if you say, well, I ended up doing $100,000 worth of roofing work, then you're going to get hit with a difference of insurance coverage for that extra $50,000. So if you're going to estimate, I would estimate higher because if it's lower, you can actually get a refund. Because essentially you overpaid for the insurance that you didn't need. That's the whole point of the audit. Okay. So you have to make sure that you get as close as possible. Now, if you have a history, you can go in and say, well, last year, you know, we did $200,000 with the roofs and we're probably going to do about the same this year. Perfect. You just use that as a, you know, as an average, or you could say, we're probably going to increase it by 10%, whatever. Okay. That's the stuff you have to make sure you, that you, um, Tell your insurance agent if they're not asking you. Now, a lot of people see insurance as a unnecessary or an expense that is very expensive. And so therefore, they try to find the cheapest insurance they can get. Now, when it comes to workers' comp, I'm right there with you. Nobody wants to pay more than they have to. But when it comes to like general liability insurance, That's really important. Here's what I would tell you is more important. It's more important that you find an insurance agent that communicates well, that knows their trade, the commercial insurance trade, and that they know how to set up your business. It's more important to find a good agent than it is to find cheaper insurance. So in other words, if I had two options, I go with agent A, but I save $5,000 a year on insurance because he's given me a cheap plan. Or I go with insurance agent B, which is going to cost me $5,000 more a year, but he is going to be a rockstar agent. I'm picking B every time. This is one of those afterthoughts where it's like, my insurance, who cares? I don't plan on doing anything wrong. Until it happens, until you have to file a claim. Until you get audited and the insurance is trying to screw you on the audit, you will want, trust me on this, you will want an insurance agent who is going to go to bat for you and make sure you're taken care of. Do not skimp out and just try to find the cheapest insurance you can get for your business. You need an insurance agent who specializes in commercial insurance. Don't go to your cousin. who sells property and casualty for, you know, residential for people, for, you know, civilians, has never done a commercial insurance policy in his life. But he tells you, oh, yeah, I have access to a commercial insurance policy. I can help you out. Do not use that person. You will only be screwing yourself in the long term. I promise you, you need to find an expert. Find somebody who's been in commercial insurance for years. The older they are, the better. Okay. Now, all of this around insurance, the workers comp we talked about with general liability, you know, you need to make sure you're covered. You need to make sure that anytime you buy new equipment, you're updating your agent and letting them know, Hey, I just bought a new truck. Hey, I just bought a new piece of equipment. I just bought a new trailer. You know, I just moved from one location to another. Um, and it's more expensive. I need more insurance. Those are all things that you need to be updating your. insurance agent on, you know, at a minimum on a quarterly basis. And if you're not having like meetings with your insurance agent, again, I would challenge you to go find one that is a professional who's going to make sure that you're taken care of. My initial insurance agent, she was awesome. And I found her in a B &I group. Whenever I got my first audit, I was like, what the hell is this? What's this audit bull crap? And I messaged her. I'm like, hey, what is this all about? And she's like, oh, that's yeah, everybody has to do an audit. You know, first year in business, I get an audit. I'm like, this is ridiculous. You want to know all this information that I haven't been collecting because I wasn't doing my job. You want all this information. Now I got to spend five,10 hours going and track it down, all this information. And she's like, hey, yeah, we do this. Let me help you. You know, just send me some information and I will help fill out the audit for you. And she did. She actually like she. Like filled out the audit for me to make sure I was taken care of. That's the kind of agent you want. And I had her for like five or six years and then she retired. She was an awesome agent. I mean, really, really good. Took care of me. You want someone like that on your team. Stop trying to find the cheapest you can find. I don't care what it is in your business. Stop being a cheap ass, period, on everything. Running a business is expensive. It's even more expensive when you try to be cheap. And every single one of you will tell your clients this, you know, oh yeah, you can go with a cheaper contractor, but whenever you call me back to fix it, it's going to be two, you know, three times as much. And then you go out and you try to find the cheapest insurance you can find. Stop doing that. Go find the right insurance agent that's going to take care of you. Okay. Back to the, um, the workers comp, you have to make sure that. you're collecting that COI. You cannot sleep on this, guys. I cannot stress to you how important it is you're collecting this information and that you're not letting them work on your job site until you have a COI in your hands. I don't care if it delays your job by three days. I don't care if it costs you $1,000 due to delays. You need to have a COI in hand before they step on your job site. If somebody steps in your job site and they get hurt on your job site, you can be liable. You can be sued for that. You have to make sure that you're covered. This isn't this, you know, do it as cheap as possible. This is a serious matter in your business and you need to treat it as such. Okay, be a professional and require your subs to be professionals as well. That's all I really got on the insurance. Again, this is for educational purposes. You should be going to talk to your insurance agent to make sure. that they're giving you the right information for your state and your business. And, you know, make sure you find a good agent that's going to take care of you. All right. So guys, I hope this was informational. I hope it was helpful and I hope you got a lot out of it. You know where to find it on the socials. You can just look for the hammer and grind podcast or you can go to the show notes. And if you haven't got my book yet, I don't know what's wrong with you. You can go buy the contractor profit blueprint. I lay it all out for you to maximize your profit and your business. But until next time, guys, remember, profit is not a dirty word.
