The Construction Service Provider law was enacted in 2011 and since that time questions have remained surrounding “direct labor” on commercial construction projects. Under the law, only three (3) total exemptions should be applied to each commercial project. However, at audit carriers often will exclude anyone with an exemption.
In a continued effort to educate carriers, agents and policyholders, the TDCI worked with NCCI to make a filing to clarify that effective January 1, 2021, carriers should include payroll for any CSP not designated as one of the three exemptions on a commercial project. Last week NCCI filed to amend Rule 2.E.1.b and 2.E.3. in the Basic Manual to provide the appropriate statutory references for premium computation purposes, which was included in the Marketplace Update.
On May 18, the TDCI contacted all writers of workers’ compensation in the state explaining this change and why it was needed. They also provided a “Sample” policyholder notice to communicate with their impacted policyholders this important change to prepare them for future premium charges (View the sample notice now at https://www.insurors.org/pdf/SampleCSPPolicyholderNotice.pdf
It is important to note that the statutory basis for the proper rating has not changed. If a CSP has a valid exemption on the registry, that CSP’s exposure on “commercial construction projects” as defined in Tenn. Code Ann. § 50-6-901(3), is chargeable on that CSP’s own policy unless the general contractor designates the individual CSP as one of up to three (3) construction service providers performing “direct labor,” as defined in Tenn. Code Ann. § 50-6-901(7) and per the requirements of Tenn. Code Ann. § 50-6-914(b)(2)(A-C).
In instances where the exempt CSP performs both residential and commercial work, the allocation of chargeable payroll between nonexempt commercial projects and all other projects will be determined by the formula found in the Basic Manual for Workers’ Compensation and Employers Liability Insurance Rule 2-E-1-b or Rule 2-E-3, as applicable.
Classifications 5604 and 5606 are not considered direct laborers and therefore are exempt on a commercial construction project, if they maintain a valid exemption on the exemption registry.
In order for the three (3) individuals on the commercial construction project to qualify for the exemption, the General Contractor must:
(i) Notify each CSP in writing that the CSP has been “selected” as one of the three (3) exempt CSP’s; and
(ii) Maintain a list identifying each exempt CSP which must be produced at audit or upon request by the state.
Watch this video of Jim Layman describe the filing: