Maine Construction Subcontractor Law Gets an Emergency Update

If you attempt to closely follow the laws around subcontractors and workers' compensation, you have been busy. This is an active area in nearly every state in the country.

 It's confusing to some and confounding to many, but it's important. If you misjudge whether or not your relationship with subcontractors actually makes them your employees for purposes of workers' compensation, you can end up paying premium you didn't expect to pay. If your work is closely tied to competitive-bid contracts, this can be a significant problem that won't show up until it's too late to recover your costs.

As we insure nearly 20,000 employers in Maine, we watch these laws closely, and provide input to our elected representatives and regulators where appropriate. Last January, a new law in Maine came into effect regarding subcontractors in the construction industry. In an attempt to close loopholes and the make a level playing field, the new law created a new 12-part test to determine whether a subcontractor should be treated by their general contractor as an employee for purposes of workers' compensation. While the test itself appears to be based on good policy, the administration of the new law for those who want to prove that they meet the test (and therefore are not considered the general contractor's employees) was unwieldy and bureaucratic. Not surprisingly, in difficult economic times, it became clear that an unintended hurdle had been placed before the entire industry.

And so, the Legislature asked a group of contractors representatives as well as representatives from the Maine Workers' Compensation Board and from MEMIC, to weigh in with a solution to this problem. The result (LD 1815) was signed into law last week by Governor John Baldacci. As emergency legislation, it took effect immediately.

The new law makes it possible for subcontractors to get "predetermined" by the Maine Workers' Compensation Board to be independent (not employees) under the new law. This predetermination, once approved, would be portable for the subcontractor to use as evidence with the many general contractors with whom the sub may work. It will also be valid for one year, provided the nature of their work and their contractual relationships do not change. The change means that the Maine Workers' Compensation Board can (and now has) provide a form that is considerably less intrusive (the old form asked for three years of tax returns as well as a list of customers).

If you work in the construction industry in Maine, you should keep your eye on this issue.  Whether you're a general contractor or a subcontractor, make sure you know where you stand.  Your insurance agent is a good resource for you. Most insurers will ask that you provide copies of approved predeterminations or certificates of workers' compensation insurance for any of your subcontractors.

To read more about the new law enacted in January, you can got to MEMIC's alert on the issue.  It was mailed in December and has recently been updated.