As Korean companies expand their participation in U.S. projects involving semiconductors, batteries, and manufacturing facilities, it has become increasingly common for multiple contractors and subcontractor personnel to work at the same project site. This has led to recurring questions about workers’ compensation coverage:

“When subcontractor personnel participate in the project, does each subcontractor need its own workers’ compensation coverage?

Can the prime contractor’s policy cover everyone working at the site?”

Workers’ compensation requirements for a U.S. project depend on the employer of each worker, the contractual structure, and the laws of the state where the work is performed. Where subcontractors are involved, the first step is to determine which entity is the actual employer. Companies should also consider whether a subcontractor’s failure to maintain coverage could create exposure for an upstream contractor.

Workers’ Compensation Coverage for Each Subcontractor

U.S. workers’ compensation coverage is generally reviewed at the level of the legal entity that employs the workers. Coverage maintained by one company does not automatically extend to employees of a separate legal entity.

When employees of several companies work at the same U.S. project site, each subcontractor’s workers’ compensation status should therefore be reviewed under the laws of the relevant state. Even if the prime contractor maintains its own coverage, the employees of a lower-tier contractor may still need to be covered through their direct employer.

If the structure is not reviewed in advance, the parties may encounter delays when submitting insurance certificates or obtaining authorization for site access. The absence of valid coverage can also create uncertainty regarding responsibility if a workplace injury occurs.

Workers’ compensation coverage generally follows the employer, not the project site as a whole.

Differences in Workers’ Compensation Systems by State

Workers’ compensation systems vary by state. In many states, employers obtain coverage from private insurers. Other states operate a state-administered workers’ compensation system or impose different rules on the purchase and administration of coverage.

Ohio employers generally obtain workers’ compensation coverage through the Ohio Bureau of Workers’ Compensation, or BWC, unless they are authorized to self-insure. A standard commercial insurance policy issued by a private carrier may therefore be insufficient to satisfy Ohio’s statutory workers’ compensation requirements.

Insurance purchased in Korea, coverage maintained in another state, or a general commercial liability policy does not necessarily replace the coverage required in the state where the employees perform their work. The fact that the employer is a foreign corporation does not automatically remove the need for a state-specific review.

In states with monopolistic or state-administered workers’ compensation systems, employers should also review whether Employers’ Liability coverage is included or must be arranged separately. In Ohio, this type of additional protection is commonly referred to as stop-gap coverage and may be relevant where the employer seeks protection against certain employee claims that fall outside the benefits provided by the state workers’ compensation system.

Prime Contractor Exposure When a Subcontractor Is Uninsured

One of the most important issues in a subcontracting structure is whether a lower-tier contractor’s failure to maintain workers’ compensation coverage may create liability for an upstream contractor.

Ohio law provides that employees of a noncompliant independent contractor or subcontractor may, in certain circumstances, be treated as employees of the party that contracted with that employer for workers’ compensation purposes. Ohio law also states that a private employer may be liable for unpaid premiums attributable to payroll for work performed by a noncompliant subcontractor under the relevant contract.

The precise consequences vary by state and project structure. However, an upstream contractor should not assume that maintaining its own policy eliminates all risk associated with uninsured subcontractors.

This is particularly important for work involving construction, equipment installation, electrical systems, piping, industrial automation, cleanrooms, and commissioning. For each contractor entering the site, the prime contractor should verify the existence and validity of workers’ compensation coverage, the state to which the coverage applies, the policy period, and whether the declared work classification corresponds to the actual work performed.

A subcontractor’s lack of coverage can create both project-level risk and potential financial exposure for the upstream contractor.

Distinguishing Subcontracting from Staffing and Employee Assignment

External personnel are not always treated in the same manner.

Where employees remain employed by a lower-tier contractor and perform work under that company’s subcontract, the subcontractor’s workers’ compensation obligations generally require a separate review. By contrast, a different analysis may apply where the upstream company directly employs the workers or uses a formal staffing, co-employment, or professional employer organization arrangement.

The relevant factors may include which entity pays wages, withholds payroll taxes, directs and supervises the work, has the right to hire or terminate the worker, and is contractually responsible for workers’ compensation coverage.

Ohio law, for example, assigns workers’ compensation responsibilities to professional employer organizations and certain alternate employer organizations under qualifying co-employment structures. These organizations may be responsible for maintaining coverage, paying premiums, and managing claims for covered workers.

Where personnel remain employees of a separate subcontractor and independently perform the contracted work, the subcontractor’s coverage should generally be verified separately. The parties should also review the insurance, indemnification, and certificate-delivery provisions in the subcontract.

If the contract language does not reflect the actual employment and supervisory structure, the parties may have difficulty relying on those provisions after an accident.

Items to Review before Site Mobilization

For a U.S. project involving subcontractor personnel, the workforce structure should be reviewed before the insurance application begins.

The company should identify:

• which legal entity employs each worker;
• the workers’ compensation system of the state where the work will be performed;
• whether each subcontractor can provide valid evidence of coverage;
• the entity whose name must appear on documents submitted to the prime contractor;
• whether Employers’ Liability or stop-gap coverage is required; and
• whether the applicable work classification accurately reflects the work performed at the site.

The work classification can affect premiums and later audits. A classification that does not match the actual scope of work may create issues during premium reconciliation or after a claim. The review should therefore be based on the work employees will actually perform, rather than only on the company’s general business description.

A Compliance Area Separate from General Accounting and Tax Work

Workers’ compensation questions are frequently raised together with U.S. entity formation, tax filings, and payroll administration. However, state-specific workers’ compensation registration, subcontractor coverage verification, upstream liability management, and the review of contractual insurance and indemnification provisions involve a different area of compliance.

Ohio’s BWC system, for example, operates differently from the private insurance market used in many other states. The analysis becomes more complex when the project also involves foreign companies, short-term personnel assignments, multiple subcontractors, and state-specific site requirements.

In Ohio construction contracts, a contractor or subcontractor that has failed to maintain the required workers’ compensation compliance may face significant contractual and legal consequences. State law also permits action to stop the operation of a noncompliant employer, and certain noncompliant construction contractors may be restricted from enforcing rights under their construction contracts. 

For this reason, the matter should be approached as a U.S. project compliance issue rather than as a routine insurance purchase.

How Hanbridge Partners Can Help

Hanbridge Partners assists Korean and Korean-owned companies with state-specific workers’ compensation reviews and subcontracting risk management for U.S. projects.

Our work may include reviewing Ohio BWC requirements and workers’ compensation systems in other states, assisting with overseas workplace insurance registrations such as Ontario WSIB, managing certificates of coverage for individual contractors, and reviewing insurance and indemnification provisions in subcontract agreements.

Based on our experience with Korean suppliers participating in U.S. projects involving LG, Samsung, and SK, we review both the actual personnel structure and the documentation required by the prime contractor or site manager.

We explain the process in Korean for the company’s headquarters personnel and prepare documents required by U.S. customers, prime contractors, or site managers in English.

Hanbridge Partners also assists in determining which entity should maintain workers’ compensation coverage, how certificates for lower-tier contractors should be collected and monitored, and whether state-administered coverage should be combined with Employers’ Liability or stop-gap protection.

Key Takeaways

When subcontractor personnel participate in a U.S. project, workers’ compensation compliance generally cannot be determined solely by confirming that the prime contractor maintains coverage.

The parties should review the actual employer of each worker, the workers’ compensation system of the state where the work is performed, the coverage status of each subcontractor, and the contractual allocation of responsibility.

This is especially important in a state such as Ohio, where workers’ compensation is administered through the state BWC system. A private commercial policy alone may not satisfy the employer’s statutory obligations, and a subcontractor’s failure to maintain coverage may create exposure for the upstream contractor.

Before personnel enter the site, companies should identify the entity responsible for workers’ compensation coverage and confirm that each subcontractor has provided valid documentation for the correct state and scope of work.

The objective is not merely to collect insurance certificates, but to prevent an uninsured subcontractor from creating liability and project delays for the entire contracting chain.