We Don't Employ Subcontractors Without Reporting to National Insurance
When building a Contractor Work Insurance Policy, the question always arises and comes up - who does the policy cover? If you've hired a subcontractor to perform the work, which policy will be activated when a work accident occurs (or other insured event) - your policy or their Contractor Insurance (if they have one)? We won't delve now into the "exclusion clauses" of each policy but will focus specifically on an issue that has no insurance solution and carries enormous financial implications for you:
The Obligation to Report to the National Insurance Institute on Construction Work Performed by a Subcontractor: Form 648
Most contractors/developers are unaware of the National Insurance Regulations (Laws and Accounts of Contractors) 1957 and the derived meaning of Section 369 of the National Insurance Law. Similarly, most people in the construction industry are unaware of the existence of Form 648, and more than that - of the legal obligation derived from it. Many of those who are aware tend to ignore or postpone dealing with this issue, thereby digging themselves a deep pit that can cause economic and tort damage - literally!
Form 648
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Background to the Review
The National Insurance Institute Regulations (Laws and Accounts of Contractors) establish that the main contractor at the construction site is the employer of all workers on site - including subcontractor employees. The background to this determination comes to address a common situation in the industry, where on one hand, various types of "diggers" are employed at many sites, and on the other hand, in a considerable number of accidents, it turns out that no insurance fees were paid to the National Insurance Institute for the injured person. According to the National Insurance Institute Regulations (Laws and Accounts of Contractors) - the main contractor will be considered in such a case as the worker's employer.
Reducing the burden is possible in 2 cases, as follows:
Section 1 of the National Insurance Regulations (Laws and Accounts of Contractors) allows for the removal of this heavy burden and defines that the main contractor will be exempt from payment for subcontractor employees if he reported to the National Insurance Institute the details of the subcontractors working under him on the project work - hereinafter: a contractor performing construction work through a subcontractor shall provide the Institute with all required details in a form obtainable from all Institute branches, within 45 days of the start of employing the subcontractor. The reporting is done through Form 648, which is submitted to the National Insurance. The importance of filling it out and submitting it on time is tremendous and decisive beyond compare.
Amendment 7/2017 to Section 369 In the letter sent these days (12/2017) by the National Insurance Institute to construction contractors in Israel with the purpose of presenting the new amendment from 7/2017 to the regulations, and to raise and demand compliance with the reporting obligation in Form 648, the following data also appears - which constitutes some relief in sanctions: "The National Insurance Institute will be entitled to charge up to 20 times the average wage (currently over 190,000 ₪) for any employer who did not report and did not pay national insurance fees for a worker in the event of an incident qualifying for a benefit. Note: The aforementioned amount refers to one worker."
Section 2 of the National Insurance Regulations (Laws and Accounts of Contractors) grants an exemption from the obligation to fill out Form 648 - as follows: If the subcontractor provided the main contractor with a confirmation from the National Insurance Institute that he declared employment of workers according to Regulation 8 of the National Insurance Regulations (Collection of Insurance Fees), 1954, in such a case, Regulation 3 will not apply to the contractor. (The sanction as described below)
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Key Points for Understanding the Matter
Since you have no idea which of the subcontractors reports and pays the National Insurance Institute for their employees - especially given that many workers are casual employees or frequently replaced by others - filling out the aforementioned form and submitting it to the National Insurance Institute within the timeframe set by law removes your liability regarding injured workers. Timely submission means within one week of signing the contract with the subcontractor or from the first day of the subcontractor's employment, whichever comes first. If you don't report as described, from the National Insurance Institute's perspective, you bear responsibility as the main contractor, and then you are the employer who didn't pay the national insurance fees. Thus, you may find yourself required by the Institute to reimburse it for all the money it paid or will pay to the injured party (in case of injury or disability) or to their family in case of a fatal incident. As mentioned, according to the new amendment: up to 20 times the average wage in the economy, per worker. I want to emphasize this point even further. Even if the subcontractor routinely reports their workers to the National Insurance Institute and even if they submitted a reporting confirmation to you - still, it would be correct and wise for you to include Form 648 in the work contract paperwork from the outset and have it signed, in order not to take unnecessary risks and to remove any responsibility for workers who are not yours, as temporary and casual workers are common in our workplaces.
The Simple Solution
Option 1: Obtaining a confirmation from the NII regarding the contractor's declaration about their employees Since filling out Form 648 is a hassle, it seems the simplest solution is to require the subcontractor to produce a confirmation from the National Insurance Institute that they declared employment of workers according to Regulation 8 of the National Insurance Regulations (Collection of Insurance Fees), 1954. (Such confirmation can be obtained by any contractor who employs at least one worker and routinely reports to the NII).
Option 2: Filling out Form 648 In January 2018, following an appeal by the Contractors Association of Israel to the National Insurance Institute and the Safety Director to simplify the form, the National Insurance Institute issued a shortened and simple form that includes only the main contractor's details and the subcontractor's details. When in doubt - there is no doubt, therefore, if the contractor did not provide confirmation from the National Insurance Institute as mentioned already at the initial contracting stage, Form 648 must be filled out. Filling out the details and submitting them is simple, yet many are not familiar with the law, don't know about the existence of Form 648 and the obligation to fill it out, or tend to "forget" to fill it out due to lack of knowledge or understanding of its importance, what purpose it serves, and how significant it is in protecting against claims by the National Insurance Institute to reimburse it for compensation payments - for workers who are not yours.
The result of failing to comply with one of these options: a lawsuit against the main contractor for failure to pay insurance premiums.
Section 3 of the National Insurance Regulations (Laws and Accounts of Contractors) - defines the sanction:
If the contractor fails to notify the employment of a subcontractor as required under Regulation 1 and on the date prescribed in this Regulation, he will be deemed, for the purposes of payment of insurance premiums and the provisions of Section 49(a) of the Law, to be the employer of the subcontractor's employees.
We would like to clarify that this is not a claim for National Insurance coverage for which we are expanding coverage under third-party insurance.
In contrast, this is an offense of: employing an employee while failing to fulfill the legal obligation to pay National Insurance contributions.
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