Installment #10 Insurance Issues for The Real Estate Investor - Workers Compensation

[Ivan Oberon]

Installment # 10 Insurance Issues for The Real Estate Investor

Let's move on now to a topic which is probably most overlooked.

WORKERS COMPENSATION:

Though frequently overlooked by many real estate investors, worker's compensation (WC) and related issues should certainly be addressed early in your business planning stages. Bear in mind, that advice from your attorney, accountant and/or from the State Department of WC (if applicable) certainly trumps what I communicate here.

The most important consideration is to understand that how you compensate your labor may or may not excuse you from carrying WC coverage on them. In effect, just because you pay them on a 1099 / independent contractor basis, doesn't mean that the courts or WC commission will agree.

Be sure you understand (seek legal advice) on what constitutes an “independent contractor” relationship. It may not be what you think (and may vary from state to state, as well).

Be wary not to create an unintentional employer-employee relationship, which could create a WC exposure for your business. Having tenants do odd jobs, such as clean-up, grass-cutting, or landscaping as a way to reduce rent may be construed as “consideration” and potentially subject you to carrying WC insurance.

Do not confuse this with upkeep and maintenance requirements of your lease. What I am addressing here is the reduction, discount, or even waiver of rent in exchange for labor provided by a tenant, especially when such labor takes place on/at locations other than the tenant's residence.

The last thing you want/need is this tenant to be injured while doing such work, only to find your liability insurance will deny the claim based upon such an “arrangement”.

Also, if you are rehabbing and flipping houses, do not purchase the materials foryour contractors as this too will imply an employee/employer relationship.Get your bid.Pay your contractor and have him buy his own materials based on the bid.