Leased Employees & Workers Compensation

There is little that brings me more satisfaction than readers who respond with great insight to some recent questions and answers. We begin by expanding on one answer. We continue with this theme as another reader ‘questions’ a point regarding an ‘exception’ to a CSLB rule, that may give some contractors an unfair advantage in bids…

Q: You and I have spoken before and I frequently read your column. Although unsolicited, I suggest there may be additional considerations regarding one of the questions in a recent column. This dealt with a “B” contractor who had his bid challenged because he was subcontracting too much work.

In many public works invitations to bid, including Cal Trans, the awarding agency includes a minimum “self-perform” requirement in the specifications. Many times it is 50%, with specific exclusion for pure specialty items (e.g. playground equipment installation).

While you were completely correct in your answer as to the license applicability, the ‘asking’ contractor may be appropriately licensed, but not meet the particular project specifications. I wish you continued success and appreciate your column and service to the contracting community at large.

A: On the contrary, your response was solicited. Implicit in all my columns is the expectation that if I do not properly or fully respond to a questioner, my readers will contribute as you have with a correction, clarification, or expansion of the answer. The questioner stated he was recently awarded a job where he intended on sub contracting most of the work. My response that the other bidder was “like Don Quixote, tilting at windmills” may have been off the mark.

You bring up a very good point that was not in the contractor’s email and I did not consider in my response. Public agencies can specify all manner of project specifications, including a minimum ‘self-perform’ requirement. The project in question may have been one such bid; however, if not, you still expanded everyone’s knowledge base. Thank you for your insight and for being a regular reader of my column.

Q: I am writing regarding a question in one of your columns regarding Worker’s Comp. Just because the CSLB shows a contractor has no Workman’s Comp coverage doesn’t necessarily mean his workers are not covered. I know of companies that lease their employees through a payroll service. As far as CSLB is concerned, they have no employees because they’re not actually employed by the contractor. They are leased and the payroll/leasing company takes care of the withholding and provides the Workman’s Comp coverage. The contractor pays for this through his lease. Your reader needs to make sure of his facts before he automatically suspects fraud.

A: Thank you for your input regarding this issue. You are correct that some contractors do lease employees through a payroll service; however, from discussions over the years with contractors and the CSLB, this is the exception, not the rule. While the reader may not have researched this particular contractor, I believe it’s important to address what many in the construction industry see as a significant problem. The reality is that a number of contractors who file an “Exemption from Workers Compensation” gain an unfair advantage since in fact they have employees.

By way of a real world example, a few years ago, I contacted several “C-33” contractors to paint the outside of my home. All three were “properly” licensed; all three had “Exemption” forms on file with the CSLB and, when they came out to bid the job, all three admitted to having employees. Needless to say, I went with a contractor who had proper coverage.

I will bring up this topic at the Underground Economy Conference in Sacramento on June 18th and let you know how the issue of leased employees is being addressed by the State.