Is Workers’ Comp Required for Independent Contractors?

Understanding Workers' Comp for Independent Contractors

What is Workers' Comp?

Workers' compensation, or workers' comp, is a type of insurance that provides financial assistance to employees who suffer from work-related injuries or illnesses. It covers medical expenses, lost wages, and rehabilitation costs. As an independent contractor, you may wonder if you need workers' comp and how it applies to your situation.

Who is considered an independent contractor?

An independent contractor is someone who gets a 1099 at the end of the year, instead of a W2 like a typical full time employee. 

If the independent contractor works like a full time employee, they will usually be considered an employee and you will be required to put them in your workers' comp insurance policy. This can vary by state and by insurance company.

If they are truly outside your workforce and are an independent entity, then they would not be considered an employee, and would be considered an independent contractor.

Is Workers' Comp Mandatory for Independent Contractors by law?

Typically, independent contractors are not required by state law to have Workers' Comp Insurance. Different states have varying definitions of an "independent contractor," so it’s important to understand the requirements in your specific state. 

How do requirements vary by state?

Workers' comp requirements for independent contractors can vary significantly from state to state. Some states are more lenient in classifying workers as independent contractors, while others have stricter guidelines. 

For example, certain states may:

• Have specific rules applying to different industries (construction, transportation, etc.)
• Use specific criteria to determine independent contractor status, such as having a separate business location or obtaining necessary licenses and permits

You can learn more about who your state considers an “independent contractor” here. 

Protecting your business and workers as a business owner

What should you make sure of if you have independent contractors?

You must make sure that they have their own insurance - even if you are not required to have workers' comp for them. If they are not insured, you will be liable. 

Always make sure to ask to see a Certificate of Insurance (COI) before you contract with someone. This is proof that they have their own insurance policy.

What are the risks of not having Workers' Comp?

If you don't have workers' compensation insurance for your independent contractors, your business could be exposed to financial risks. For example, if a contractor suffers a workplace injury and doesn't have coverage, they might seek compensation from your business. 

Additionally, certain contracts might require workers' comp for everyone who is working on the job, so if they didn't have an existing policy. you could miss out on opportunities.

Frequently Asked Questions
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What should small business owners know about workers' comp for independent contractors?

As a small business owner, it's essential to understand that workers' comp is generally not required for independent contractors. However, it's important to be aware of the specific rules and regulations, as different states have varying definitions of what constitutes an "independent contractor." 
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Can independent contractors waive their right to workers' comp insurance?

In some cases, independent contractors have the ability to waive their rights to workers' comp insurance. This is often done through a written agreement with the hiring entity which specifies that the contractor is not entitled to workers' comp benefits. 

However, this practice varies by state, and it's important to familiarize yourself with your state's specific regulations.
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What are the consequences if independent contractors are classified as employees at audit?

If your insurance company determines that employees were misclassified as independent contractors, businesses will face significant penalties. This includes the requirement to pay for workers' compensation insurance retroactively, potentially resulting in substantial financial liabilities. Therefore, it's essential to accurately classify workers to avoid legal complications.
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In addition to requesting Certificates of Insurance from Independent Contractors, what other steps can I take to make sure that I’m protected?

To add an extra layer of protection, you can also ask your 1099 contractors for waivers of subrogation. This prevents insurance companies from seeking claims against your subcontractors in case of an accident.

Do you want peace of mind when working with Contractors?

Making sure your independent contractors have their own Workers' Comp coverage is one step towards maintaining a reliable and worry-free working relationship.

If you're an independent contractor seeking to obtain workers' comp insurance, don't hesitate to reach out to us. Call or text us at 886-338-8823 for a free consultation, or to get your instant quote today! 

Remember, having that extra layer of protection not only benefits you but also eases the minds of the businesses you work with.