Produce brokers, cold storage facilities, some contractors, and other companies involved in transportation have a particularly increased exposure to workers compensation claims due to the use of owner operators. In the course of everyday business, it sometimes becomes necessary to scale the size of your fleet to handle increased workload. When your ability to purchase or long term lease a unit operated by your employee is limited, you may hire an outside operator or company to handle the additional work. Small transportation companies may not carry State required workers compensation coverage whether it be due to cost, a misunderstanding of exposure, or any other number of reasons. While coverage costs in New Jersey, for example, can average 18% of gross payroll, costs associated with self insuring a claim can add up quickly both in incurred expenses and fines.
What are my options?
There are three ways you can go about handling workers compensation on hired owner operators:
- Require coverage before hiring
- Deduct cost from pay
- Do not hire or part ways
The best option is always to require evidence of coverage prior to releasing any bills of laden for delivery. The second option, when only a single only operator is used, is to deduct the appropriate amount from payment to cover the owner operator. Lastly, there are those circumstances where the best option is simply to part ways if appropriate coverage can not be provided. The best option is always to require coverage of those that work with you. Workers compensation is a cost of doing business and indicates that an employer is committed to complying with State law and the welfare of his employees. While an appropriate amount, 6% (NJ 2012), can be deducted from payment to cover the increased exposure, by doing so, you also take on coverage for losses that could occur. This could be very negative as those losses will affect your insurance experience. Additionally, you should let your insurance know if you practice this option, as it may affect your insurability with them. It’s always better to place your insurance with a carrier that thoroughly understands the risk so you do not get cancelled after a claim for an exposure the carrier never knew about.
