Subcontractors, Parking Lots and Owner Coverage in Michigan Workers' Compensation
Ridgeway Roofing is a Michigan sole proprietorship with five full-time employees and a workers' compensation policy written on estimated annual payroll of $180,000. During the busy season Ridgeway uses four additional installers paid on 1099s - two arrive in their own trucks with their own nail guns and set their own hours, two work Ridgeway's schedule with company equipment. One of the 1099 installers, working with company equipment, falls from a roof and breaks a femur. Separately, a full-time shop employee is injured in the company parking lot ten minutes before his shift while carrying in a ladder. The owner, who works on roofs himself, has never elected coverage.
1. How should the claim for the injured 1099 installer be analyzed, and what is the exposure either way?
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Apply Michigan's economic reality test, not the label on the check. Courts weigh control over the work, method of payment, who supplies equipment, whether the worker holds himself out as a business, the right to fire, and the worker's opportunity for profit or loss.
- The two installers with their own trucks, tools and hours look like genuine contractors.
- The two using Ridgeway's equipment on Ridgeway's schedule look like employees regardless of the 1099.
If the injured worker is an employee: the workers' compensation policy responds to the claim, and the carrier will charge premium at audit for the undeclared payroll - potentially several years back. Failure to secure coverage for an employee also exposes the employer to Michigan penalties and to a tort suit outside the exclusive remedy shield.
Practical step now: report the claim immediately and let the carrier take the employment determination; do not settle or characterize the worker in writing. Collect certificates of insurance and written subcontracts with indemnity for the true contractors.
2. Analyze the parking-lot injury and the owner's own exposure.
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Parking lot. Under the going-and-coming rule, injuries commuting to and from work are generally not compensable. The premises exception applies when the injury occurs on the employer's premises - the company lot, during a reasonable pre-shift interval - and the employee is doing something incidental to the job. Carrying in a ladder for the employer's benefit strengthens the claim. Expect this to be found compensable; report it and let the carrier investigate rather than denying it unilaterally.
Owner. A sole proprietor is not automatically covered by his own workers' compensation policy. He must affirmatively elect coverage, and the carrier will then charge a minimum payroll (a flat deemed payroll, not his actual draw). Without the election he has no wage-loss or medical benefits for his own injury and is limited to his health insurance.
Action items: elect owner coverage with a stated minimum payroll, include all 1099 installers in the audit or document their contractor status, and verify the policy's classification for roofing versus shop labor.