Policyholder
Notice*
It has come to the attention of the Tennessee Bureau of Workers' Compensation and the
Tennessee Department of Commerce and Insurance that there is some confusion regarding
exemptions for workers' compensation policies on commercial construction projects.
Since 2011, Tennessee law has stated that on a commercial construction project a maximum of
three (3) Construction Service Providers' (CSP's) may be exempt for the duration of the project.
This means that only three total individuals may be exempt, which would include any of the
General Contractor's exempted CSP's.
Effective January I, 2021, the Basic Manual for Workers' Compensation and Employers
Liability Insurance is being amended to clarify the proper rating basis for the coverage being
afforded. The statutory basis for the proper rating has not changed.
Therefore, even 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 construction projects and all
other construction 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.
Please note: It will be your responsibility to maintain separate, verifiable records for commercial
and residential projects to provide at the time of audit.
The following are some example scenarios for your reference on how the above laws and rules
apply:
Example 1:
General contractor ABC has not elected any exemptions of its own. As part of a commercial
project, ABC hired 10 individuals performing direct labor work, who are all on the Exemption
Registry and all have workers' compensation coverage. On this project, ABC can select three of
these individuals to be exempt from premium charge. To do so, ABC must affirmatively notify, in
writing, each one selected along with maintaining a list of those selected for use at audit or per
request of the state. When auditing the individual Construction Service Provider's policies, who all
have excluded themselves, only the three with the written notifications from ABC, can be excluded
from a premium charge for this particular commercial job despite an exclusion endorsement being
listed on their individual policy.
Example 2:
General contractor ABC has three officers, all of whom have elected to be exempt from coverage,
all are actively perfonning direct labor and have been designated in writing to be exempt from the
project. ABC also hires 10 individuals performing direct labor duties, are listed on the Exemption
Registry and with workers' compensation coverage. In this situation, none of the individuals can be
designated by ABC as exempt because their three officers perfonn direct labor and are already
exempt for the three individuals allowed. When auditing the individual Construction Service
Provider's policies, who all have excluded themselves, all would have to be included for this
commercial job.
Example 3:
General contractor ABC has three officers, all of whom have elected to be exempt from coverage
and are on the Exemption Registry. One officer only works in the office, another is an executive
supervisor or foreman (code 5606 or code 5604), while the last performs direct labor on the
commercial project and has been designated in writing to be exempt from the project. ABC also
hires 10 individuals performing direct labor duties, are listed on the Exemption Registry and with
workers' compensation coverage. In this situation, two of the individuals can be designated by
ABC, in writing, as exempt to arrive at the three individuals allowed. When auditing the individual
Construction Service Provider's policies, who all have excluded themselves, only the two who
received the exemption letter in writing from ABC would be excluded from a premium charge. The
remaining eight, without letters from ABC, would have to be included for this commercial job on
their individual policy
If you have any questions on this notice, please contact your insurance agent. You can also reach
us at (800) 653-7893 or email us at I.\1S@LibertyMutual.com.