Workers' compensation pays medical care and lost wages to employees hurt on the job, and in exchange it generally limits the employer's liability for those injuries. Florida treats construction differently from other industries, and the Business and Finance exam leans on exactly those differences. Workers' comp shows up in three content areas: obtaining insurance (Area A), overhead and labor burden (Area B), and state law compliance (Area F).
Coverage threshold: one employee in construction
F.S. 440.02 defines covered employment. For most private employers, coverage is required with four or more employees. For the construction industry, it is required for all private employment with one or more employees.
That contrast is the single most tested workers' comp fact on the exam. If a question says "construction," the answer is one.
Florida also ties coverage to licensing. Under F.S. 489.115, an applicant must submit an affidavit attesting to workers' compensation coverage (under Chapter 440) and public liability and property damage insurance before a certificate or registration is issued or renewed.
Exemptions for corporate officers
Some owners can opt out of coverage for themselves. The construction rules are narrow:
| Rule | Construction industry requirement | Statute |
|---|---|---|
| Who may elect | Corporate officers (and LLC members owning at least 10%, who count as officers) | 440.02 |
| Maximum number | No more than 3 officers per corporation or group of affiliated corporations | 440.02 |
| Ownership | Each officer must own at least 10% of the stock and be listed as an officer with the Division of Corporations | 440.02 |
| Certificate validity | 2 years from the effective date (certificates issued on or after January 1, 2013) | 440.05 |
An exemption covers only the officer who elected it. Employees are still covered. A roofing corporation with two exempt officer-owners and one hired laborer must still carry a policy for the laborer.
The general contractor is on the hook for uninsured subs
F.S. 440.10(1)(b) treats all employees of a contractor and its subcontractors on the same contract work as employed in one business. The contractor is liable for compensation to all of them, except employees of a subcontractor who has secured coverage.
What that means in practice:
- If a framing sub's policy has lapsed and a framer is injured, the general contractor owes the benefits.
- Under 440.10(1)(c), the contractor must require subs to provide evidence of workers' comp coverage. A sub that is a corporation with an exempt officer must give the contractor a copy of the exemption certificate.
- Under 440.10(1)(d), a contractor that pays benefits for an uninsured sub's employees can recover them, plus interest, from the sub, unless they agreed in writing that the contractor would provide coverage.
This is why contractors collect certificates of insurance before a sub sets foot on site and track expiration dates.
Benefits: the waiting period
F.S. 440.12(1): compensation is not allowed for the first 7 days of disability (medical benefits are still provided). If the disability lasts more than 21 days, compensation is paid from the start of the disability.
Enforcement: stop-work orders and penalties
The Department of Financial Services enforces coverage under F.S. 440.107.
- An employer that fails to secure coverage can receive a stop-work order.
- Continuing business operations in violation of a stop-work order draws a penalty of $1,000 per day (440.107(7)(c)).
- In addition, the department assesses a penalty equal to 2 times the premium the employer would have paid at approved manual rates for the period it was uninsured (440.107(7)(d)).
Example
A contractor ignores a stop-work order and keeps working for 6 days. The stop-work violation penalty alone is 6 × $1,000 = $6,000, on top of the penalty based on the premium it should have paid.
Premium math
Workers' comp premiums are rated by job classification and are commonly quoted as a rate per $100 of payroll. An experience modification factor then adjusts the premium for the company's own loss history: 1.00 is average, above 1.00 is a surcharge, below 1.00 is a credit.
Worked example
A framing contractor has estimated annual payroll of $450,000 in a class rated at $7.20 per $100. Its experience mod is 0.90.
Step 1. Payroll units. $450,000 ÷ 100 = 4,500
Step 2. Manual premium. 4,500 × $7.20 = $32,400
Step 3. Apply the mod. $32,400 × 0.90 = $29,160
If the mod were 1.25 instead, the premium would be $32,400 × 1.25 = $40,500. Poor loss experience costs real money, which is one reason a safety program (and OSHA recordkeeping) belongs in the business plan.
Watch the decimal
The most common wrong answer divides payroll by 1,000 instead of 100. Read the rate basis in the question every time. General liability, by contrast, is often rated per $1,000 of payroll or receipts; see bonds and insurance.
Workers' comp as part of labor burden
When you estimate a job, the hourly wage is not the cost of labor. Employer payroll taxes, workers' comp and other insurance are added on top. If a carpenter earns $28.00 per hour and the class rate is $7.20 per $100 of payroll, workers' comp alone adds $28.00 × 0.072 = about $2.02 per hour before the mod. Add the employer's share of payroll taxes (see payroll tax) and the burden adds up quickly. The job costing and estimating guide shows how burden flows into a bid.
Summary of numbers to know
| Fact | Number |
|---|---|
| Construction coverage threshold | 1 or more employees |
| Non-construction threshold | 4 or more employees |
| Maximum exempt construction officers | 3 per corporation or affiliated group |
| Minimum officer ownership | 10% of stock |
| Exemption certificate validity | 2 years |
| Waiting period | First 7 days (paid back if over 21 days) |
| Stop-work violation penalty | $1,000 per day |
| Uninsured period penalty | 2 times the premium that should have been paid |
Practice workers' comp questions
Our Florida Business and Finance Exam Prep includes original questions on Chapter 440, sub liability and premium math, with worked explanations and 90 days of access. Also see the B&F exam overview.
Practice questions
Under Florida's workers' compensation law, how many employees must a construction-industry employer have before coverage is required?
- AThree or more
- BOne or more
- CFour or more
- DFive or more
Show answer
Answer: B. F.S. 440.02 covers all private construction-industry employment with one or more employees. The four-or-more threshold applies to non-construction private employers, which makes it the most tempting distractor.
Source: F.S. 440.02(20)(b)2. ("Employment")
Under F.S. 440.02, how many corporate officers of a construction-industry corporation (or group of affiliated corporations) may elect exemption from workers' compensation?
- ANo more than one
- BNo more than three
- CNo more than five
- DAny number, if they own stock
Show answer
Answer: B. As to construction-industry corporations, no more than three officers of a corporation or of any group of affiliated corporations may elect to be exempt. Each must be a shareholder owning at least 10% of the stock and listed as an officer with the Division of Corporations.
Source: F.S. 440.02(18)(b)2.
For how long is a Florida certificate of election to be exempt from workers' compensation (issued on or after January 1, 2013) valid?
- A1 year
- B2 years
- C3 years
- DUntil revoked, with no expiration
Show answer
Answer: B. F.S. 440.05 provides that a certificate of election to be exempt issued on or after January 1, 2013, is valid for 2 years after its effective date and expires at midnight 2 years from issue.
Source: F.S. 440.05
A general contractor hires a framing subcontractor whose workers' compensation has lapsed, and a framer is injured. Under F.S. 440.10, who is liable for the framer's compensation?
- ANo one, because the subcontractor was uninsured
- BOnly the injured worker's health insurer
- CThe general contractor, which may then recover from the subcontractor
- DThe property owner
Show answer
Answer: C. F.S. 440.10(1)(b) makes the contractor liable for compensation to employees of a subcontractor who has not secured coverage. Under 440.10(1)(d), the contractor can recover benefits paid from the subcontractor unless they agreed in writing that the contractor would provide coverage. This is why contractors must require evidence of subs' coverage.
Source: F.S. 440.10(1)(b)-(d)
A framing contractor's workers' compensation rate is $8.50 per $100 of payroll. Estimated annual payroll is $380,000. What is the estimated premium (before modifiers)?
- A$32,300
- B$3,230
- C$323,000
- D$44,706
Show answer
Answer: A. Workers' comp premiums are rated per $100 of payroll: ($380,000 ÷ 100) × $8.50 = 3,800 × $8.50 = $32,300. $3,230 divides by 1,000 instead of 100.
Source: Standard accounting/business principle (verified with Python where calc)
A contractor's workers' compensation experience modification factor is 1.25. This indicates:
- ALoss experience better than average, lowering premium 25%
- BA 25% discount for paying premium in full
- CLoss experience worse than average, increasing premium about 25%
- DThat the company has 25 employees
Show answer
Answer: C. An experience mod compares a company's losses to the average for its class; 1.00 is average, above 1.00 surcharges and below 1.00 credits the premium. 1.25 means roughly a 25% surcharge.
Source: Standard accounting/business principle (verified with Python where calc)
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