Bulletin 1998-7

Kansas Insurance Department

Kathleen Sebelius, Commissioner

TO: All Insurance Companies and Group Funded Pools Authorized to Write Workers' Compensation Insurance in Kansas

SUBJECT: 1998 House Bill 2591

Self-Employed Subcontractors

DATE: April 23, 1998

The 1997 Legislature enacted House Bill No. 2011, which became effective July 1, 1997. This law required all self-employed subcontractors performing work for a contractor, regardless of occupation or industry, to provide themselves with workers' compensation insurance.

All subcontractors, therefore, were required as of July 1, 1997 to cover themselves, in some manner, with workers' compensation insurance and could have either purchased a workers' compensation policy or include themselves on a general contractor's policy with the agreement of the general contractor. If the subcontractor purchased a policy prior to January 1, 1998, a predetermined annual payroll of $ 24,900 would be used to determine the annual premium. This payroll amount was increased to $26,800 after January 1, 1998. If coverage was provided under a contractor's policy, then the subcontractor's actual payroll would have been used to determine the premium.

The 1998 Legislature has now approved House Bill No. 2591. This bill will effectively delete the requirement for self-employed subcontractors to purchase a workers' compensation policy. This change will become effective after publication in the Kansas Register on April 30, 1998. From July 1, 1997, until that date, however, a subcontractor should be covered by workers' compensation insurance. Upon the effective date of the 1998 legislation (when published in the Kansas Register), a subcontractor has the option of either canceling the workers' compensation coverage as of that date or continuing the workers' compensation policy. If the subcontractor's decision is to cancel coverage, those policies must be canceled on a "pro rata" basis rather than the usual "short rate" basis.

Under the rules currently approved by my office and the cancellation provisions in the workers' compensation insurance contract, the coverage should be canceled on a "short rate" basis if canceled by the insured. The short rate basis would allow insurance companies to collect additional premium or penalty if coverage is canceled by the insured. However based on the changes approved by the 1998 Legislature, I interpret the new law to require insurers to allow cancellation without penalty. Accordingly, I am requiring cancellation on a pro rata basis, which is based on the number of days coverage is in force, and no penalty shall be charged to the insured subcontractor for initiating the cancellation. Additionally, in instances where an annual fixed payroll amount was used to determine the subcontractor's premium, this fixed payroll amount is to be prorated for the time coverage was provided.

Furthermore, I request that you review your records to identify any subcontractors covered for workers' compensation as a result of the enactment of House Bill No. 2011, and notify these subcontractors that with the enactment of House Bill No. 2591 they are no longer required by law to procure coverage. The 1998 legislation will, for the most part, return the subcontractors to a pre-July 1, 1997 situation. In other words, the subcontractor has the option whether or not to purchase a workers' compensation policy.

Any rating, premium or audit questions involving this matter should be directed to Mr. Dick Cook of my office at 913-296-7835 or any of his staff.