UKTC Archive

Re: Time to think - INSURANCE

Subject: Re: Time to think - INSURANCE
From: Scott Cullen
Date: Dec 29 2003 12:10:08
Well, I've been keeping my distance here since UK practice may have unique 
characteristics.  It's
also been 20 years since I did any contracting.  But Bill's observations ring 
true.

I suspect there are at least three issues here:  taxation, insurance and 
contract vs employment law.

Here in the US the taxman expects that the employer will withhold taxes from 
the employees salary
and pay it directly to the government.  (That way the gov gets the money week 
by week rather than
waiting till tax day the following year and there's a better chance that the 
employee won't have
spent it all by then).  The gov also expects the employer to pay various 
taxes, unemployment
insurance, etc. on that salary.  There are various tests of employee status:  
does the worker work
for others and have other sources of income; does the worker take direct 
instruction or supervision
from the boss (if yes boss is an employer if no boss is a contractor with a 
sub); does the worker
supply his own tools and equipment; etc?

Here in the US insurances for things like tree work are payroll based.  You 
pay x% of payroll for
general liability insurance and y% for workers compensation (covers if the 
worker is injured on the
job).  The insurnace company has an auditor who comes round to look at your 
payroll records and make
sure you have paid enough.  But they will also look at general disbursements, 
not just the payroll
book.  And they are looking for payments to sub-contractors.  And you must 
show a certificate of
insurance for each subcontractor (that the sub is carrying their own) or the 
payment in the
disbursement book will be characterized as payroll and you pay the x + y %.  
And then you will fight
over the portion of disbursement to the sub that was actually payroll vs the 
sub's equipment,
overhead, profit, etc.  These things should in rough terms prove out..... 
your billing covers your
employees (labor and labor burden), overhead, equipment, profit.  If your 
payments to subs look like
only the employment portion it may smell like a different kind of employment. 
 If the payments to
subs looks like it includes everything but your profit it apears more like a 
real sub-contract.  But
the auditor has one big question:  where is the certificate of insurance?

Your broker is just a middle man (at least here).  A big broker with a big 
book of business may
negotiate favorable deals with insurors (underwriters) if the insurors wat it 
badly enough.  If the
insurors don't want a certain type of business (like arbs) the broker may 
have no leverage.  But I
don't see brokers requiring things like double coverage.  They can only 
sell-deliver what the
insurors give them to peddle.  So in this environment (low interest rate, 
high loss) it may well be
that insurors insist on double dipping.

But you really need to sort out the absoulte requirements from the audit 
questions.

There is another issue which is that of minimum premiums.  You may need to 
pay a minimum just to get
coverage, regardless of payroll.  So if you have all subs you will in effect 
be double paying on
some portion of salaries.  It is a cost of doing business, ostensibly you are 
subbing becuase you
make more money that way.  But the small operator may never get to the 
threshold of net profit off
this arrangement of subs.

Insurance is expensive. It must be built into the price you charge in the 
marketplace.  It must be
paid (if you are a legit business).  Subbing does not seem to me to be a way 
to avoid it because the
sub is going to have to be paying it.  Subbing seems to me a way of lowering 
fixed expenses (the
subs own their own equipment), or not needing to keep help on during a slow 
time, or increasing
profit because Joe your old employee who is now a sub works cheap when he's 
on his own.

Then overlay employement law.  Regardless of the taxman and the insurance 
man, what do all the other
laws require or allow.

SC

----- Original Message -----
From: <Andersonarb@xxxx.com>
To: "UK Tree Care" <uktc@xxxxxx.tree-care.info>
Sent: Monday, December 29, 2003 5:24 AM
Subject: Re: Time to think - INSURANCE


In a message dated 29/12/2003 09:34:46 GMT Standard Time,
Edmund_Hopkins@xxxxxxxxxxx.gov.uk writes:

Mention of partnerships is interesting-I bet there are lots of contractors
out there looking at partnerships to mitigate costs of insurance-


I think a lot of the stuff said about partnerships/employees/subbies comes
out of Tax Experience; does the subby provide his own tools /truck/etc. We 
got
moaned at about this about a dozen years ago but one of our itinerant rock
climber employees became self employed and because he showed other sources 
of
income (modelling; yes really) he appears OK. For the Taxman the sub having 
his
own insurance might be a factor in whether he's an employee or not.

The situation as I see it is complicated by the fact that a lot of
contractors sub to other contractors and are probably both insured for the 
same job by
AXA, via Algarve (Thats the underwriter and Broker for the colonials). Which
ought to mean that the ultimate client is covered by at least 2 insurance
policies for 3rd party damages.

Yeah, monopolies, insurance, tax; makes you wonder whether its worth getting
out of bed....

Bill.



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