clock July 27, 2020

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Tips for Employers: Do You Need Workers Compensation Insurance for Your Contractors?

As an employer, you have the onus to take care of all your employees, including part-time workers and contractors. These part-time employees include contractual workers like cleaners and independent contractors.

While the law requires you to have workers’ compensation for all your workers, the same doesn’t apply for part-time employees. However, workers compensation for contractors and part-time employees is always a good idea. 

That’s because it saves you a bundle in medical expenses should you or one of the contractor employees get injured. It also helps you avoid all the legal issues that may arise should an accident occur. Although you won’t be liable, you will still save a bundle on other legal costs before the court straightens the matter out.

In this piece, we’ll discuss whether you should get worker compensation for your contract workers. Read on to find out why you may and may not need workers’ compensation for contractors. 

Do You Need Workers Compensation for Contractors?

Hiring a contractor is a cost-effective way to scale your business without hiring an employee. Contractors may be cheaper, more flexible, and in some cases, offer valuable advice to bolster your company’s success.

What legally defines a contractor is any employee who isn’t covered by employment and labor laws. Because of this fact, employers have no legal obligation to get workers’ compensation for contractors. However, since worker compensation law varies from state to state, it might be a good idea to review the state compensation laws first.

The short answer for whether employers need compensation for their contractors is yes.

That way, in case of injury, they can file for a compensation claim for medical coverage. If they feel the benefits aren’t adequate for their claim, they can bring their issue to the court for a worker’s compensation hearing.

Aside from the worker comp court, you as the employer are better placed in case of any legal dispute.

That’s because the chances are high that the contractors will seek compensation from you should they get injured while working for you. Even if the cause of injury was almost all on the part of the contractor, the court ruling would almost always be against the employer.

Why Is Workers’ Compensation Insurance So Important for Employers

Most employers hire contractors to reduce their payroll since employers pay contractors via the 1099 form. However, sometimes hiring contractors may end up costing more when you don’t have insurance for the said contract workers.

To Protect Your Business

For instance, when a contractor’s actions result in losses via damage, insurance covers it. Without insurance, you have to foot the damage bills yourself. The second case is when the contractor gets work-related injuries or illnesses. 

The contractor may ask you, the employer, for compensation. If not, they may take the matter to court, which never ends well for the employee.

If the matter goes to court, then you may have to pay the contractor a lot of money. Not only does this dent your bank account, but it also dents your company’s reputation. Insurance also protects your business from any losses the contractor may bring about.

So apart from worker’s compensation, it might be a good idea also to get general liability coverage for your contractors. These two policies are somewhat similar but starkly different.

State Requirements

Some states mandate that employers must cover all their workers, including contractors, with workers’ compensation.

That means that employers must get coverage for their employees from the first hire. Which means that it doesn’t matter how long the employee works on your firm, worker’s compensation is mandatory for them.

Other states will make it clear what type of contractors require mandatory workers’ compensation. You can choose not to get worker’s compensation for the other type of workers, but it’s something we don’t recommend.

Because worker’s comp is mandatory in some states, failing to provide it will result in civil penalties and fines. These fines vary from state to state, but they’re pretty hefty.

Get an attorney to ensure that you’re classifying your employees the right way. The lines between a contractor and a part-time employee are somewhat blurred, and since ignorance is no defense in a court of law, you’re better off hiring a lawyer to straighten things out.

Classifying Workers for Workers’ Compensation

The IRS makes it clear that any misrepresentation or wrongly classifying of your workers will lead to lawsuits. As such, you should be very keen when classifying your employees if you can’t afford an attorney. 

You can check with the IRS to find out how they expect you to classify your workers. If you misclassify a contractor as an employee, it can be misconstrued for trying to withhold taxes. 

Other Types of Insurance to Consider for Contractors

The following insurance policies will also be beneficial for you when you hire contractors. They will reduce your liability for costly and devastating incidences.

  1. Commercial auto insurance– This covers the liability of a vehicle accident in case you or your employees are at fault. It is especially useful if you have a logistics company.
  2. Errors and omissions– In any business, errors, and mistakes are rife. Sometimes these minor errors may have devastating consequences to both the clients and the business. The insurance covers these types of instances.

Worker’s Compensation for Your Contractors Is in Your Best Interest

Getting workers compensation for contractors is more for you than the contractor. Remember, you save a lot from getting this insurance than compensating for medical expenses. Plus, you don’t want any issues that may arise to take the legal route; the rulings are rarely in the employer’s favor.

Lastly, remember to take extra caution when classifying your employees. The IRS doesn’t take misclassifying and misrepresentation lightly.

Contact us today to get a quote for worker’s compensation for both your full-time employees and contractors.

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