Is There Workers Comp for Independent Contractors?
a couple of months ago

Is There Workers Comp for Independent Contractors?

workers comp for independent contractors

It’s the law in every single state that we all know well: workers’ compensation. In total, it adds up to 1.3 percent of your labor costs.

But while it’s clear that everyone who works directly for you should be covered, when it comes to independent, 1099 contractors, things start to get a little murky.

Classifying Employees Correctly

You may be tempted to ignore workers’ comp for independent contractors without doing any more research on the subject since they aren’t your direct employees, but in the long run, that may not be the best idea for the health of your business.

Do you need workers’ comp for independent contractors? The truth is you don’t unless the worker is under contract or if the worker is related to you, but throughout the United States many workers are improperly classified as independent workers when they are actually direct employees of a company and should be eligible for workers’ comp.  

Keep reading to learn more. We’ll help you sort out this confusing topic.

What is an Independent Contractor 

The IRS states that independent contractors are self-employed, and that the payer “has the right to control or direct only the result of the work and not what will be done and how it will be done.” 

You’ll probably be surprised to learn that the IRS definition of an independent contractor doesn’t often match with a state’s definition. Let’s take Washington State as an example. 

To determine whether a worker is classified as an independent contractor or a direct employee that’s under the workers’ comp law, there are six rules in WashingtonState utilized, with additional rules for construction workers. 

The personal labor test comes first. Workers are an independent contractor if they bring their own work crew and are responsible for directing their crew’s work, and you should continue along with the checklist.

However, they’re considered employees and should be under your workers’ comp policy if your business is responsible for directing them and their crew. 

Moreover, contractors such as painters, landscapers and flooring installers who bring in more than common hand tools don’t meet the requirements and aren’t your employees under the workers’ comp law. This is because they require specialized tools that aren’t available to a regular handyman or janitor at your business.

Don’t Assume an Employee’s Status

If they’ve met the previous rules, then the contractor must also have an established business location, be a business specifically different and do a specifically different service than your company. They also must file business tax returns with the IRS and have an open Department of Revenue (DOR) account. 

Does any of this sound familiar? Probably not. As you can see, the IRS definition of an independent, 1099 contractor and the state of Washington’s are exceedingly different.

Some states even have a nine-step criteria for determining if a worker is an independent contractor. The main takeaway is that you shouldn’t assume, and check with your state’s criteria to make sure that they really aren’t your direct employee, as it’s not as cut and dry as you may first assume!

Who is an Employee

To keep it simple and to ensure that everyone who should be covered is, if someone is performing work for you, then they should be covered under workers’ comp insurance. It should be an automated part of your new employee procedure to add employees to your policy right away. 

The IRS states that there are three factors that determine if someone is an employee of yours or an independent contractor: behavioral control, financial control, and relationship. 

Workers are employees when you have the right to direct and control the work performed by them, even if you decide not to. This includes the type of instructions, how detailed those instructions are, training, and the evaluation of the worker’s performance. 

Financial control is if you have the right to direct or control the financial/business aspects of your worker’s job. Have you invested a lot in the equipment or tools they use on the job? Is there a great opportunity for profit or loss? What is the method of payment? 

Independent contractors often get paid a flat fee, while an employee is guaranteed an hourly wage. 

Lastly, there is relationship to consider. This includes written contracts that state whether an employee is a contractor an employee, benefits they’re given, services provided to the business and the permanency of the relationship. 

All of these factors go into whether someone should be classified as an employee or independent contractor – again, it’s wise not to assume and do your research ahead of time because the consequences could be dire! 

Workers’ Comp for Independent Contractors

We’ve now learned that while workers’ comp for independent contracts isn’t required, many actual employees of companies are often misclassified as independent contractors! The risks are not worth the tax benefits – the worker may become injured while they’re not covered, and you could lose your business because of it. 

Penalties and fines are extremely heavy when it comes to workers’ comp violations and only grow with each new violation. They can also carry legal charges, including felony charges.

Moreover, if a worker is injured or even killed without the proper insurance it’s your company’s responsibility for all medical costs, and the surviving family can still sue in civil court.

If you’re not sure, seek additional training or read more about workers’ comp in order to be 100% sure so that when you’re audited your company or business will continue running smoothly. 

Putting it All Together

While we’ve learned that workers’ comp for independent contractors isn’t necessary, it’s important that when it is, you are just as prompt and efficient at providing it as you are for regular employees. 

To learn more about workers’ comp and to purchase it for your own company, contact us today and learn more about how we can keep your business running and compliant! 

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Kyle

Kyle is one of the co-owners of National Workman's Comp Insurance Solutions. He is an expert specializing in Florida business workers comp insurance, for small to large businesses. Workers compensation insurance is complicated and he is here to help you with the risks and premiums to get you covered.

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