Workers’ compensation insurance is a type of company insurance that pays medical costs and lost wages for workers who are injured or sick at work. In most cases, independent contractors are not employees, but they may want to get this type of insurance to protect their savings and income in the event that they become injured or sick while on the job.
While most states require employers to purchase workers’ compensation insurance for their employees, this coverage is optional for independent contractors.
Do independent contractors need employee compensation?
Although independent contractors are usually not required by law to take out workers’ compensation insurance, they can choose this coverage if they are subcontractors. In some cases, independent contractors may need to purchase a policy to meet the requirements of a contract.
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Employee compensation is administered by the states in accordance with state laws. In some states, a company or general contractor may be required to pay workers compensation to independent contractors. In these cases, the self-employed contractor does not need to take out his own policy – at least not for this job. In situations where states do not require independent contractors to purchase workers’ compensation insurance, a contract may require the employing contractor or the company to request proof of insurance before the contractor begins work. In these cases, the independent contractor must take out a policy and provide the landlord with an insurance certificate. The insurance certificate is issued by the insurance company and contains the sum insured and the date on which the policy came into force.
Why Should Independent Contractors Have Workers’ Compensation?
Even if a contractor is not required to have employee compensation, they may still need coverage and protection. Anyone can be injured at work, so any independent contractor should consider getting an insurance policy.
Consider this example: John is an independent contractor who installs computer hardware. He is at a client’s workplace and trips over his toolbox. He falls and breaks his wrist. Since he cannot use both hands, John cannot work for the next six to eight weeks while his wrist heals. Not only does he have to pay his medical bills for the broken wrist, but he also has to make up for the lack of income during his incapacity for work. Workers’ compensation would alleviate this problem.
In particular, health insurance is often insufficient in these situations. If you are injured while at work, your health insurance company has the right to refuse the claim and transfer responsibility to the company. This means the independent contractor can be held liable for thousands of dollars in medical bills that are not covered by health insurance. Also, since most independent contractors are sole proprietorships, they lose income if they are disabled during an injury. So spending goes up, but revenue goes down.
For these reasons, any independent contractor should consider entering into an employee compensation policy. [Looking for a workers’ comp provider? See our picks for the best business liability insurance providers.]
Bottom line: While most states do not require independent contractors to have workers’ compensation insurance, it is still a good idea to get one.
Employee Compensation: Independent Contractors vs. Employees
For the purposes of employee compensation, employers must ensure that they properly classify employees as independent contractors or employees. Here are some indications that someone is an employee according to the Internal Revenue Service (IRS):
- You will receive work instructions, e.g. B. where and when they work, what tools they use, and where to buy supplies.
- You will receive a great deal of detailed instructions on how to get things done.
- Rating systems measure how work is being done, not just the bottom line.
- The worker is trained through ongoing process and method instruction.
- The employer is invested in the equipment that the employee uses.
- Expenses will be reimbursed.
- You receive guaranteed regular wages, possibly supplemented by commissions.
- The relationship continues indefinitely and not for a specific project or period of time.
- They provide important business activities.
If an employee meets the definition of an employee, a company must take out employee accident insurance for him. It doesn’t matter how little they earn or whether they are full-time or part-time.
Workers’ Comp: Dealing with Subcontractors
If you are an independent contractor who subcontracts work to others, consider whether you need workers’ compensation insurance for those people. In some states, general contractors are required to maintain an employee compensation policy for subcontractors to ensure that everyone has adequate coverage.
Even if you don’t need to maintain insurance coverage for subcontractors, you should protect yourself by making sure they have their own policy. Just as you may be asked to provide a certificate of insurance, you can request one from any subcontractor you use.
Workers’ Comp: Hiring casual or part-time workers
Sometimes independent contractors can hire employees. For example, the company may need part-time, seasonal help, or expand and need more regular help. If you are hiring employees, you will likely need to get workers compensation insurance before your first shift. This isn’t the case in every state, so be sure to check state laws. For example, Georgia requires workers’ compensation insurance if you have three or more employees. This means that you can have two assistants in Georgia and you don’t have to pay for the insurance.
Workers’ Comp: Dealing with Volunteers
Volunteers who do community service are generally not considered employees. However, this rule usually applies to nonprofit organizations. So if you are a for-profit company, volunteers can be considered employees if they meet the definition and are therefore eligible for employee compensation benefits.
For example, in New York, for-profit company volunteers are considered employees and are therefore required to receive employee compensation. Remember, the payment may not always be a wage; it could mean, for example, room and board or a trade in services. The same is true in Florida: if volunteers meet the definition of worker, they are entitled to workers compensation benefits and you must put a workers compensation insurance policy in place for them. It is important to check the definition of an employee in your state to see how it relates to the employee’s computing needs.
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