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About Underwriting/Guide to Applicants

About Underwriting / Ratemaking

Pennsylvania is a Loss Cost State. The Pennsylvania Compensation Rating Bureau and the Coal Mine Rating Bureau of Pennsylvania are non-governmental agencies, maintained by member companies. Rates, rules, and regulations of the Rating Bureaus are subject to the authority of the Insurance Commissioner. All insurers are represented by these rating organizations.

An experience modification to premium is available under the Experience Rating Plan administered by the Rating Bureau. An employer is eligible when the premium developed by audited payrolls of exposure during the experience period, extended at current Bureau loss costs, is $10,000 or more. The experience period shall be no more than three years, commencing four years prior and terminating one-year prior, to the date for which an experience modification is to be established.

Discounts may be offered. Premiums earned on a fixed cost basis (not subject to retrospective ratings) are discounted at 10.9% on premiums of $5,000 up to $99,999, 12.6% on premiums between $100,000 and $400,000 and 14.4% on premiums greater than $400,000.

Guidance to Applicants and Policyholders of the State Workers’ Insurance Fund with Respect to the Determination of Whether Workers are Employees or Independent Contractors of an Applicant or Policyholder

One of the most important and difficult elements in the underwriting of workers’ compensation insurance policies is the determination of whether workers utilized by applicants for such insurance, or policyholders, are employees or independent contractors of the applicant, or policyholder. If workers are determined to be employees, rather than independent contractors, of the applicant, or policyholder, the insurance premium charged will increase. Although this determination can be an important decision in the underwriting of any workers’ compensation policy, it is particularly important with respect to the trucking and construction industries.

There is no clear-cut definition, or exact set of facts, which govern the determination of whether a worker is an employee or independent contractor of an applicant or policyholder. The determination must be based on the specific facts of each case; however, the employee would most likely be considered an Independent Contractor for the following reasons: they were not hired in Pennsylvania, they were not provided materials, and they have no set hours, direction and control (see General Information, Direction and Control).

The following is some basic information about this issue and a list of some of the legal authorities which SWIF consults when it makes this determination in connection with the review of an Application for workers’ compensation insurance and the calculation of a final, or audited, premium. The following is not intended to be legal advice. Applicants, and policyholders, should consult their own attorneys if they require legal advice in this regard.

No Insurable Interest: Based upon the Workers’ Compensation Act, the carrier must have an insurable interest to write a workers’ compensation policy; having no employees constitutes no insurable interest. SWIF is prohibited from issuing a policy on an “if any” basis.


Construction Workplace Misclassification Act

On Feb. 10, 2011, the Construction Workplace Misclassification Act (Act 72) took effect. Misclassification of employees as independent contractors is illegal for all commercial and residential construction in Pennsylvania. The Pennsylvania Department of Labor & Industry enforces Act 72.

  • Independent Contractors in the Construction Industry
  • Construction Workplace Misclassification Complaint Form
  • Construction Workplace Misclassification Act Poster

Pennsylvania Workers’ Compensation Act, Section 302

This pertains to the inclusion of the subcontractors as employees for workers' compensation purposes. That section covers the relationship of contractors and subcontractors as well as the role of statutory employment in deciding employment issues. The inclusion of subcontractors is also addressed in case law, which has for the most part set the standards for determining whether a subcontractor is an employee. The benchmark case in describing the analysis of employment status is the West Motor Freight decision. In accordance with that decision, a workers’ compensation insurance carrier must make a good faith business judgment in determining whether workers are employees or independent contractors.

This means that carriers must review the facts of each case in conjunction with legal precedent and make a business determination as to employment status. In applying this process, an insurance carrier’s position must be fair, consistent and reasonable and avoid the appearance of being arbitrary or capricious.

In the analysis of any case, an insurance carrier must analyze the facts of each situation, consider the current legal precedent on employer-employee relationships, and make a reasoned decision based on the merits of each case. The criteria utilized by SWIF in determining employment status relate primarily to its review of direction and control as provided by the general contractor and the relative nature of the work provided by the subcontractors. These factors are significant in determining whether an employer-employee relationship exists.


Items that indicate a policyholder exercises direction and control to make a person an employee of the policyholder include:

  1. Work at a place set by the policyholder
  2. Subject to supervision and instructions regarding the details of the work
  3. Subject to dismissal by the policyholder
  4. Performs on-going service for the policyholder
  5. Uses tools, equipment and materials furnished by the policyholder
  6. Has federal income, FICA and other taxes deducted by the policyholder
  7. Performs duties assigned by the policyholder
  8. Works hours set by the policyholder
  9. Receives a regular salary, usually based on an hourly, weekly or monthly rate

It is important to note that not all items are needed in order to demonstrate an employment relationship exists. Rather, the preponderance of information and intent of the policyholder are key to making a final determination. Further, according to case law, direction and control does not have to be utilized in order to have an employment relationship. The appearance of or the right of direction and control is significant even if the policyholder never utilizes the right.


Determining the relative nature of the work involves two tests. One test is the nature of the alleged employee’s work, and the other test is the worker’s relationship to the policyholder’s business.

Nature of Employee’s Work

The nature of the work includes the level of skill involved and the credentials required to perform that work. The necessity of a license to perform the work is an indication the work may be a separate undertaking and the worker an independent contractor rather than an employee. Further, if the individual’s work is considered artisan in nature, he may be considered an independent contractor. For example, plumbers, electricians, and masons have historically been considered to be craftsmen and independent contractors as long as they are performing for a non-related entity. Normally, these artisans or craftsmen should, at a minimum, produce an insurance certificate for general liability insurance and be issued a 1099, rather than a W-2 by the policyholder.

Relation to the Employer’s Business

If the work performed is an integral or essential part of the policyholder’s business, a court may be more likely to find that an employer-employee relationship exists. The same is true if the work is performed continuously rather than intermittently or if it lasts long enough to be deemed continuous service rather than the contracting of a particular project. In addition, a court may determine that an employer-employee relationship exists if the policyholder appears to accomplish its regular business through the regular services of the questioned person. For example, a drywall company which is a subcontractor to other contractors will have difficulty proving that the only workers it uses are independent contractors, or drywall sole proprietors. This is because the workers are an essential part of the drywall company business and are doing work that should be expected of its regular employees. The same rationale holds true for framing and roofing companies that hire other framers or roofers to perform contracted work. They would normally be deemed to be employees as well. Other work activities that are labor intensive would require adequate justification to prove the subcontractors are independent.

With respect to trucking accounts, the recent Universal AM Can decision has clouded the determination of employment status. Previously, courts ruled that if a trucking operation followed ICC and PUC requirements with respect to its owner operators, the owner operators would probably be considered employees of the trucking company. However, in Universal AM Can, the Pennsylvania Supreme Court rejected this position and required further elements of control to establish an employment relationship. Unfortunately, the Court did not describe what additional controls would be needed to establish an employer-employee relationship.

The following are legal authorities which SWIF reviews when it makes the determination of whether a person is an employee or an independent contractor.


  1. Eggelton v. Leete, 186 PA Super, 542, 142 A.2d 777 (1958), which references the following decisions with respect to the analysis of an employer-employee relationship.
    1a.  Feller v. New Amsterdam Casualty Co., 363 PA 483, 70 A.2d 299. “It is well settled that the designation given a claimant by an employer is not conclusive as to whether he is an employee or an independent contractor.”  
    1b.  Gadd v. Barone, 167PA Super. 477, 75A.2d 620. The method of payment for services is not determinative (of employment status.)  
    1c.  Stevens v. Publishers Agency,, 170 PA Super. 385, 85A.2d 696. The fact that no provision was made for the deduction of Social Security or income tax is not determinative of the status. 
  2. Potash v. Bonaccurso, 179 PA Super. 582, 117A.2d 803. “The employee’s relationship must be determined from the peculiar facts of each case…and the fact that a particular occupation may involve such technical skill that the employer is wholly incapable of supervising the details of performance does not preclude a master and servant relationship.”

  3. Hanst v. Swartzfager, 170 PA Super. 219, 85A.2d 639. “We have said that the vital test in determining whether a workman is a servant of the person who engaged him for work is whether he is subject to the latter’s control or right of control not only with regard to the work to be done but also with regard to the manner of performing it…And it is not the fact of actual interference or exercise of control by the employer, but the existence of the right or authority to interfere or control, which renders one employee rather than an independent contractor.”

  4. West Motor Freight, Inc. v. The Pennsylvania Compensation Rating Bureau and Carriers Insurance Company. “Rule 2a contemplates the insurance company reviewing both the facts of the individual case and the current legal precedent relating to employer/employee relationships and then making a business judgment…”

  5. Surowski v. Public School Employee’s Retirement System, 78 PA Commonwealth CT. 490, 467 A.2d 1373 (1983). “In determining whether a relationship is one of employer-employee or independent contractor, certain factors will be considered which, while not controlling, serve as general guidance to the Court. These factors include: the control of the manner that work is to be done; responsibility for the result only; terms of agreement between the parties; the nature of the work or occupation; the skill required for performance; whether one employed is engaged in a distinct occupation or business; which part supplies the tools; whether payment is by the time or by the job; whether the work is part of the regular business of the employer, and the right to terminate the employment at anytime. Hammermill Paper Co. v. Rust Engineering Co., 430 PA.365, 243 A.2d 389 (1968).J.Miller Co. v. Mixter, 2 PA Commonwealth CT. 229, 277 A.2d 867 (1971).”

    “Because each case is fact specific, all of these factors need not be present to determine the type of relationship which exists.”

  6. Davidson v. Workmen’s Compensation Appeal Board (Deleon), 42 PA Commonwealth CT. 30, 399 A.2d 1193 (1979). The right of control is the most persuasive indication of one or the other. “The first and probably most important factor is control of the manner in which the work is accomplished.”

  7. PA Manufacturer’s Assoc. Ins. Co. v. Workmen’s Compensation Appeal Board, 52 PA Commonwealth CT. 588, 418 A.2d 780 (1980). “The question of whether an employer/employee relationship exists is one of law, based upon the facts of each case.”

  8. North Penn Transfer, Inc. v. Workmen’s Compensation Appeal Board (Michalovicz), 61 PA Commonwealth CT 469, 434 A.2d 228 (1981). The key element is whether the alleged employer has the right to control the work to be done and the manner in which it was performed.

  9. Douglas v. Workmen’s Compensation Appeal Board (Dennis Truck Company), 40 PA Commonwealth CT 101, 396 A.2d 882 (1979). If the alleged employer has this right, (as covered in North Penn Decision) an employer/employee relationship likely exists.

  10. Northern Central Bank & Trust Co. v. Workmen’s Compensation Appeal Board (Kontz), 88 PA Commonwealth CT. 277, 489 A.2d 274 (1985). “It is the existence of the right of control, which is critical, even when the right is not exercised. This distinction is of particular importance in two types of cases. (1) when a highly skilled or experienced workman appeals to be doing his job without supervision or interference; or (2) when a person is performing a job that is so simple that no supervision or interference is required. Under “exercise” test both workers would appear to be uncontrolled; yet in each case, the employer may still have the ultimate right to dictate the method of performance if the occasion arose.”

  11. Smith v. Primose Tapestry Co., 285 PA 145, 131 a.703 (1926). “An agreement should never be binding on a widow and her dependent children, since their claim in not derivative, but totally independent and separate from that of a deceased employee.”

  12. Genie Trucking, Inc. v. American Home Assurance Company, 524 A.2d 966 PA Super 1987. Appeal Denied, 531 A.2d 430 (98 MD 1987). Here the court ruled that an insurance company can charge a premium for an uninsured contractor if that company had a contingent liability for a claim payment.

  13. Universal AM Can, Ltd and National Union/ALAC v. Workers Compensation Appeal Board, (Clarence O. Minteer), 563 Pa. 480; 762 A.2d 328 (2000). Supreme Court overturned Commonwealth decision on employee status of owner operator. The Court ruled that the employment status of a driver cannot be determined specifically on ICC and PUC requirements and standards. That determination must be made on further documentation in order to establish any employment relationship.

Larson’s Workmen’s Compensation Law Section 44 (1986) “The traditional test of the employer/employee relation is the right of the employer to control the details of the work.”


  1. Section 103 of the Workers Compensation Act (WCA) 77 P.S. §21.

  2. Section 104 of the Workers Compensation Act (WCA) 77 P.S. §22, 77 P.S.§22b, 77 P.S. §22c, 77 P.S. §22d.

  3. Section 105 of the Workers Compensation Act (WCA) 77 P.S. §25, 77 P.S. §52, 77 P.S. §462.

  4. Section 302 of the Workers Compensation Act (WCA) 77 P.S. §461, 77 P.S. §462, 77 P.S. §25, 77 P.S. §463, 77 P.S. §462.1, 77 P.S. §462.2, 77 P.S. §462.3, 77 P.S. §46.4, 77 P.S. §462.5, 77 P.S. §462.6, 77 P.S. §462.7.

  5. Section 321 of the Workers Compensation Act (WCA) 77 P.S. § 676.