Employer Insurance
Requirements
Subcontractors
General Contractors
Independent Contractors
Michigan Department of Labor and Economic Growth
Workers’ Disability Compensation Agency
P.O. Box 30016
Lansing, MI 48909
June 2024
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1. Which employers must carry workers’ compensation coverage? 418.115
a. All private employers regularly employing 1 or more employees 35 hours or more per week for
13 weeks or longer during the preceding 52 weeks.
b. All private employers regularly employing 3 or more employees at one time. (This includes part-
time employees.)
c. Agricultural employers if they employ 3 or more employees 35 hours or more per week for 13 or
more consecutive weeks.
d. Householders employing domestic servants if they employ anyone 35 hours or more per week
for 13 weeks or longer during the preceding 52 weeks.
e. All public employers.
2. Who is an employee? 418.161
An employee is any person in the service of another, under any contract of hire, express or implied.
A partner is considered an employee of the partnership, a corporate officer is considered
an employee of the corporation, and a member who is a manager is considered an employee
of a limited liability company.
A sole proprietor (self-employed individual) working in his or her sole proprietorship is
never an employee of that business.
3. What are the workers’ compensation coverage requirements for corporations, limited
liability companies, partnerships and sole proprietors?
a. Corporations, limited liability companies and partnerships must either have a workers’
compensation policy or a Notice of Exclusion Form, WC-337, on file with this office. The
owner(s) are considered an employee(s) of the business. If you have any employees or use
subcontractors, a workers’ compensation policy is required for your business.
b. Sole proprietors only require a workers’ compensation policy when they have 1 full time or 3
part-time employees. The owner of a sole proprietor is not considered an employee of the
business.
4. What must an employer do to satisfy the requirement for workers’ compensation
coverage? 418.611
a. Purchase a policy from a licensed and approved insurance carrier. Contact your insurance agent
for further information.
b. Purchase a policy through the assigned risk pool. Contact the Compensation Advisory
Organization of Michigan at https://caom.com/
c. Secure coverage through a self-insured group fund. Following is the link to the list of self-insured
group funds: https://www.michigan.gov/-/media/project/websites/leo/documents/wdca-self-
insurance/wca_group_fund_list
d. Receive authorization from the Workers’ Disability Compensation Agency (Agency) director to
be an individual self-insurer. The Self-Insured Division can be reached at 517-284-8939.
e. File an exclusion form with the Insurance Compliance Division of the Agency. This division can
be reached at 517-284-8922.
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5. What is an exclusion form? 418.161
It is a form provided by the Insurance Compliance Division (WC-337) which is completed by the
employer and filed with the Agency. The form may be used by employers who only employ persons
who can be excluded under the Workers’ Disability Compensation Act (Act). The proper filing of
this form allows the employer to comply with the insurance requirements of the Act without
purchasing a policy of workers’ compensation insurance. After the completed form is filed with the
Agency, the excluded employees are barred from receiving workers’ compensation benefits.
6. Which employers may use an exclusion form? 418.161
An employer may use an exclusion form only if all its employees can be excluded according to the
Act and no subcontractors are used in the operation of the business. The following employers may
exclude employees:
a. Sole Proprietorship: If it has one or more employees and all employees are the spouse, child
or parent of the sole proprietor.
b. Partnership: If all employees are partners.
c. Stock Corporation: If all employees are corporate officers and own 10% or more stock in the
corporation.
d. Limited Liability Company: If all the employees are members and are also managers and own
10 percent or more interest in the business.
7. What is the purpose of an exclusion form?
By filing an exclusion form a business certifies that it fits into one of the categories described in
Question 6. The exclusion form does not establish anything about the relationship between that
business and a contractor.
8. An employer has four full-time employees. However, only two of the employees can be
excluded under the Act. Can the employer properly use the exclusion form?
No. The employer must purchase a policy of workers’ compensation insurance. The employer then
may exclude one or both of the excludable employees from the policy which may save the employer
premium dollars. Contact your insurance agent for details.
9. May a sole proprietor with no employees use an exclusion form to prove that he or she is
an independent contractor?
No. The Agency will return all exclusion forms filed by a sole proprietor with no employees.
Question 6 explains which employers may use an exclusion form. Question 11 lays out some of
the criteria that must be met in order to be considered an independent contractor.
10. Can a sole proprietor be covered under a workers’ compensation policy?
No. A sole proprietor cannot receive workers’ compensation benefits under a policy issued to the
sole proprietorship or the general contractor (principal contractor) when the sole proprietorship
operates as an independent contractor.
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However, individuals who choose to establish their business as a partnership, corporation, or limited
liability company may be covered as employees and may receive workers’ compensation benefits
from their partnership, corporation, or limited liability company. Information on forming partnerships,
corporations, or limited liability companies may be obtained by contacting the Corporations and
Securities Bureau at the following website: https://www.michigan.gov/lara/bureau-list/cscl/corps or
by phone at 517-241-6470.
11. Who is an independent contractor?
An independent contractor is one who maintains a separate business and holds himself or herself
out to and renders service to the public.
Generally, a person cannot become an independent contractor just because he or she wants to be,
or because an employer wants the person to be an independent contractor. It is not enough that
the employee and the employer agree. If a person only works for one business and is directed and
controlled by that business, the person probably is an employee and not an independent contractor.
The “20-factor test” announced by the IRS in Revenue Ruling 87-41, 1 C.B.296 further defines the
employee-employer relationship. You may wish to consult your attorney for further explanation.
Question 13 discusses some key elements of an independent contractor relationship.
12. A general contractor employs a subcontractor which is a sole proprietorship with no
employees. Can the insurance company auditor charge the general contractor premium on
money paid to the subcontractor?
No, however, it is the responsibility of the general contractor to provide reasonable proof to his or
her insurance company that the subcontractor is a sole proprietorship with no employees. The
following proofs may be used. For additional proofs, see Bulletin 89-03 on page 7 of this booklet.
a. The Federal Identification Number of the sole proprietorship.
b. A copy of the written contract between the sole proprietorship and the general contractor.
c. A list of other general contractors for whom the sole proprietorship has worked recently and/or
is currently working for.
d. A copy of the assumed name certificate which the sole proprietorship has on file with the county.
e. Proof that the sole proprietorship is paid by the job and an IRS 1099 form is given to the sole
proprietorship by the general contractor at the end of the year.
f. A sworn statement from the sole proprietor that he or she has no employees.
g. An advertisement that shows the sole proprietorship is available to work for others.
If the insurance auditor does not accept reasonable proof, the general contractor should request
in writing another payroll audit from the insurance company. If the premium is not waived after
the re-audit, the general contractor may appeal to the Department of Insurance and Financial
Services and request a hearing to resolve the premium dispute.
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13. Can a general contractor require a certificate of workers’ compensation insurance from its
subcontractor?
If the subcontractor is a sole proprietorship with no employees, the Act does not require a certificate
of workers’ compensation insurance. However, the general contractor may on a contractual basis
require a certificate of workers’ compensation be provided. This is a contractual issue not regulated
by the Agency.
If the subcontractor is a sole proprietorship and has one or more employees, or if the subcontractor
is a partnership, corporation, or limited liability company, the general contractor should require a
certificate of workers’ compensation insurance or a copy of a properly executed exclusion form.
If a subcontractor doesn’t carry workers’ compensation insurance and does not have an exclusion
form on file with the Agency, any work-related claim filed by the uninsured subcontractor’s employee
may become the responsibility of the general contractor. Michigan law allows the workers’
compensation liability to transfer from an uninsured subcontractor to the general contractor. In this
situation, the general contractor retains the right to sue the uninsured subcontractor for
reimbursement of all compensation paid to the uninsured subcontractor’s employee.
14. Can an employer withhold money from an employee’s wages to pay workers’ compensation
insurance premiums?
No, absolutely not! Workers’ compensation is an employee benefit which must be provided by
the employer.
Cont
act Information
To request exclusion forms,
contact:
Michigan Dept. of Labor and Economic Opportunity
Workers’ Disability Comp. Agency—Insurance Compliance
P.O. Box 30016
Lansing, MI 48909
517
-
284
-
8922
For information on self-
insurance:
Michigan Dept. of Labor and Economic Opportunity
Workers’ Disability Comp. Agency—Self-Insured Division
P.O. Box 30016
Lansing, MI 48909
517
-
284
-
8939
For information on insurance
companies, contact
Department of Insurance and Financial Services
P.O. Box 30220
Lansing, MI 48909
877
-
999
-
6442
For information on work place
safety programs, contact:
Michigan Dept. of Labor and Economic Opportunity
MIOSHA
Consultation Education & Training
P.O. Box 30643
Lansing, MI 48909
517
-
284
-
7720
For MIOSHA information call:
800
-
866
-
4674
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MICHIGAN INSURANCE BUREAU BULLETIN 89-03
RE: Subcontractors and appropriate premium charges
Because the individual sole proprietor subcontractor is not eligible for benefits under the contractor’s
workers’ compensation policy, the Commissioner of Insurance (Commissioner) deemed this an
improper interpretation and withdrew approval of Rule IX-D that was filed by the Facility for the residual
market. The withdrawal of approval prompted the Facility to file revisions to the rule to address problem
areas. After negotiations between the Facility, the Insurance Bureau and the W.C. Bureau, the
following revised language was implemented March 1, 1989 for the residual market business.
1. Law on contractors and subcontractors:
The workers’ compensation law provides that a contractor is responsible for the payment of
compensation benefits to employees of its uninsured subcontractors.
A subcontractor is one who maintains a separate business and holds himself or herself out to and
renders service to the public.
2. Coverage:
This statutory responsibility is automatically insured by the Standard Policy issued to the contractor.
3. Premium for uninsured subcontractor with employees.
The contractor shall furnish satisfactory evidence that the subcontractor with employees had
workers’ compensation insurance in force covering work performed by the subcontractor or provide
a copy of an exclusion form (BWC 337) which has been properly filed with the Bureau of Workers’
Disability Compensation if the subcontractor qualifies for the use of such exclusion form. For each
subcontractor with employees for which such evidence is not furnished, additional premium shall be
charged on the policy which insured the contractor as follows:
a. The contractor shall provide a complete payroll record of the employees of each uninsured
subcontractor. Premium on such payroll shall be based on the classifications which would have
applied if the employees of the subcontractor had been employees of the contractor.
b. If the contractor does not supply the payroll records of its subcontractors who have employees,
the full subcontract price of the work performed during the policy period by the subcontractor
shall be established as the payroll of the subcontractor’s employees. The additional premium
shall be charged on the amount as payroll.
Exception to 3b above
If investigation on a specific job discloses that a definite amount of the subcontract price
represents payroll, such amount shall be the payroll for the additional premium computation. In
contractors for labor and material, the payroll shall not be less than 50% of the subcontract price.
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In contracts for labor only, the payroll shall be established as not less than 90% of the
subcontract price.
Piece Work, Drivers, Chauffeurs Under Contract:
This rule on subcontractors does not apply to contracts for piece work, nor to drivers and/or
chauffeurs on vehicles engaged under contract:
(1) The entire amount paid to piece workers shall be the payroll as provided in Rule V.
(2) The rules on Special Classification in Rule IV apply to drivers and/or chauffeurs on contract
vehicles.
c. If an experience modification has been established for the contractor, such experience
modification shall be applied to the premium developed for the uninsured subcontractor.
4. Premium shall not be charged for a subcontractor which is a sole proprietorship with no employees
if the following criteria establishes that the particular person is, in fact, a subcontractor and not an
employee. The burden of proof rests with the contractor.
5. Criteria to be used to determine subcontractor status:
The criteria to be considered in determining whether an individual is an employee or subcontractor
is based upon reasonable proof provided to the carrier. Some specific factors to establish the
relationship between the general contractor and the subcontractor follow:
a. Factors to determine if the subcontractor maintains a separate business:
(1) A federal identification number of the subcontractor.
(2) A copy of an assumed name certificate filed with the county.
(3) Copies of the subcontractor’s articles of incorporation, partnership papers, or articles of
organization for limited liability companies.
(4) Subcontractor received an IRS 1099 form in lieu of a W-2 form.
(5) The subcontractor maintains its own separate place of business.
(6) The subcontractor furnishes all its own materials and equipment to perform the job tasks.
(7) Copy of a written contract which spells out an employer/employer relationship.
(8) The subcontractor can realize a profit or suffer a loss as a result of services rendered.
(9) The subcontractor has the right to hire or fire its employees without securing permission from
a general contractor.
b. Factors to determine if the employer holds itself out to and renders service to the public:
(1) The subcontractor is listed in the yellow pages and/or advertises in newspapers, trade
journals, on TV or on the radio.
(2) List of other general contractors or individuals the subcontractor worked for recently.
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(3) The subcontractor performs specific jobs for prices agreed upon in advance and pays
expenses incurred in connection with the specific jobs.
c. Other factors:
(1) A sworn statement from the sole proprietor that the sole proprietorship has no employees.
(2) The subcontractor does not primarily depend upon the payments from one general contractor
for the payment of the individual’s living expenses.
The Michigan Department of Labor and Economic Opportunity is an equal opportunity
employer/program. Auxiliary aids, services and other reasonable accommodations are available
upon request to individuals with disabilities.
WC-PUB-002 (6/2024)
