Painters: Why you need insurance
From a practical, legal and even an ethical standpoint insurance is a must.
“Every contractor needs liability, property, and worker’s comp insurance,” says Shayne Butcher, author of “Paint Inc.” and partner in Edmonton-based Calibre Group. “It’s a necessary evil.”
Even if you don’t need it legally, it’s probably a good idea, says Chris Haught, RC Painting in Cedar City, Utah. “Depending on license requirements in your area, insurance may not be required. However, anyone who performs work on someone else’s property would be wise to make sure they are protecting their business, employees and customers.”
Even if you think you’re covered, you might not be. For example you probably have personal auto insurance, but are you covered when using it for business purposes. “Personal insurance may not cover a work-related accident/employee driven,” says Haught.
Insurance you should consider:
- Workmen’s comp – Owners can opt out. Employees must be covered but this is commonly avoided by paying workers as independent contractors.
- Liability – Some states require it as part of your license. General contractors will require it; if they hire a non-insured sub-contractor they could be held liable.
- Pollution/environmental – needed for RRP (lead abatement) work.
- Inland marine – this type of insurance generally covers property that is movable or transportable in nature. Some policies might cover equipment that’s used on your home site, but make sure it’s covered away from home as well, particularly since you are probably doing most of your work away from home. Inland marine can even cover non-painting apparatus such as computers and computer systems.
Just like any type of contract, says Butcher, read your insurance agreement thoroughly and if you don’t understand it, find someone who does. Know what things are worth, he advises. A typical problem of paint contractors is not reporting accurate replacement costs.
“In all property policies, there is a term called a co-insurance penalty,” says Butcher. “This will be applied whenever a value of property is not set at a replacement cost limit. Always go over your limits of insurance with your broker to avoid these circumstances.”
Sometimes relationships go south, both with that customer or that employee that you initially had high hopes for. Or someone gets hurt on the job, and perhaps believes that you are liable for it. Maybe you are.
“Employees are considered named insureds under the Contractor’s General Liability for work performed within their scope while employed by the employer,” says Butcher. “So if any Third Party bodily injury or property damage is caused by the employee while acting within the scope of activities for the employer, the policies will defend the employee and employer.”
When are painters not painters?
An unethical practice, says Haught, is saying your employees aren’t employees. In a labor situation, there’s a legal definition of when someone is and isn’t an employee.
“This is a common argument among painters and other trades,” she says. “Some employers believe if they classify a worker as a subcontractor, they are not required to pay workers comp, unemployment insurance, or state and federal taxes. The IRS has some guidelines to define the roles, but we all know this is a widely abused practice. Many unethical contractors will pay their workers with cash or checks and issue a 1099. At the end of the year, the ‘employee’ may be surprised that they now have to pay taxes on that income!”
Insurance isn’t cheap, and it’s not fun to take one more chunk out of your monthly earnings. But if an employee is injured on the jobsite, says Haught, and you don’t have coverage, you may have to pay for the medical bills out of your pocket. That’s an even bigger chunk and it won’t be fun. “Even your customer may be forced to pay some of the costs if an accident happens on their property. There have been cases on this that have gone all the way to the Supreme Court.”
You may want to incorporate your company to protect your personal assets, but even in this case, get legal advice on what it protects and doesn’t.
Bonded and insured painters
Sadly, there are plenty of stories about contractors taking money and leaving a big mess on someone’s property, or simply taking the money and leaving. Getting bonded is a good way to be gain trust.
“Being bonded and insured is one of the best ways to show potential customers that you mean business,” says Sara Aisenberg, the director of educational outreach at SuretyBonds.com. “It can give your customers enough peace of mind to hire you.”
Being bonded refers to the act of obtaining and maintaining a surety bond. Basically, this is a guarantee between you, your customer and the surety company that provides the bond. When you purchase the bond, you’re promising to perform your job in accordance with a surety contract. If you don’t, the surety will back up your pledge financially. However that doesn’t get you off the hook. If the surety has to pay out to your customer, you’ll be required to reimburse them.
In many cases, the law requires bonding. Generally, customers are more inclined to work with businesses that are bonded because it’s clear these businesses take their responsibilities and reputations seriously.
“Some states consider painting professionals to be contractors,” says Aisenberg, “and – as a result – require them to obtain a contractor license. Typically, these professionals must post a contractor license bond (also called a contractor bond) to obtain a license. To find out if your state requires contractor licenses for painters, visit the Contractor’s License Reference Site (www.contractors-license.org/).
“On the other hand, some states keep professional painters separate from other types of contractors or categorize them as specialty contractors. In these states, painters might be able to post a business service bond. Although business service bonds aren’t required by law, they act as a good marketing tool and a way to protect the customers.
“By purchasing a business service bond, the painter guarantees that they will perform ethically and lawfully while on the job – which will most likely take place in the customer’s home or office. If the painter breaches this agreement, the customer will be protected.”
Insurance, says Aisenberg, covers what might happen when your company is providing a service. “If you hire employees, you’re required to have worker’s compensation,” she says, “which pays wage replacement and medical benefits for employees injured on the job, and unemployment insurance. Some states also require disability insurance, which, Sara points out, provides partial wage replacement to employees that are unable to work because of a non-industrial injury, pregnancy-related condition or illness. Even if your state doesn’t require it, it’s often an option for you to purchase as an employee benefit.”
In some areas, businesses are required to pay an unemployment insurance tax. “If your business must pay that tax,” says Aisenberg, “you will have to register your business with your state’s workforce agency. Contacting your state’s Workers’ Compensation Office, the IRS or your state department of labor is the easiest way to make sure your business has the insurance it needs.”
Give your customer a copy of all the paperwork. That will give them piece of mind that you’re certified to do the work. With a commercial job, this becomes even more important.
Important: Always check with your insurance agent or lawyer before making any decisions based on this article.
–By Jerry Rabushka, editor & associate publisher, The Paint Contractor magazine