TO: All companies and group-funded pools authorized to write workers' compensation

FROM: Kathleen Sebelius, Commissioner of Insurance

RE: 1997 House Bill 2011 (Self-Employed Subcontractors)

DATE: September 19, 1997

The Kansas Insurance Department distributed Bulletin No. 1997-10 on June 30, 1997. Since then, the Director of Workers' Compensation, after a number of meetings with interested groups and one of the sponsors of this legislation, has revised his interpretation of the new law. I enclose a copy of the article in which the Director details his current interpretation. In brief, self-employed subcontractors are now covered as employers under the workers' compensation act, irrespective of the $20,000 minimum payroll requirement, and must insure all their employees. A self-employed subcontractor is now considered a "workman," "employee," or "worker," as those terms are used in the workers' compensation law. The bill eliminates the necessity for self-employed subcontractor, performing work for a contractor, to file an election form to be covered under the workers' compensation law. A self-employed person may be defined as a person employed by themselves.

The law requires an employer to secure payment of workers' compensation benefits by insuring the payment. Therefore, any self-employed subcontractor performing work for a contractor is deemed to have elected to be covered by the law and must secure insurance for himself or herself.

The Director is still researching whether a subcontractor can obtain coverage through the contractor's policy, if the contractor is willing. However, it appears the main responsibility to provide coverage lies with the subcontractor. In view of this, the subcontractor's premium will be based on an annual payroll of $24,900, in accordance with current rate filings. If the subcontractor can obtain coverage under the contractor's policy, it will be up to the contractor and subcontractor to determine the subcontractor's payroll. The Department recommends any contract between the principal and a subcontractor include a specified amount of payroll the parties have agreed to use to compute the premium.

Again, as stated in Bulletin 1997-10, insurance companies should immediately notify their agents and insureds why this change occurred and advise them of the premium charge. The insured should also be informed the additional premium will be billed in accordance with the insurer's normal billing procedures. If the self-employed subcontractor was covered for a full year, then the current payroll base of $24,900 is used. This payroll amount is prorated for coverage of less than a full year. Of course, this amount may be subject to change as a result of any rate filing the Commissioner may approve this fall. If you have questions about this change, please contact Dick Cook, who supervises this area in the Department, or one of his staff.

Kathleen Sebelius

Commissioner of Insurance