Hiring 1099 independent contractors instead of W-2 employees is common across many industries. But when it comes to workers comp insurance, the contractor vs. employee distinction is more complicated than most business owners realize.
Are You Required to Cover 1099 Contractors?
Generally, true independent contractors are responsible for their own workers comp coverage, not the businesses that hire them. However, the key word is true. Simply issuing a 1099 and calling someone a contractor does not make them one in the eyes of your state’s workers comp law. Most states apply a multi-factor test to determine worker status.
What Happens If a Contractor Is Reclassified as an Employee?
If your state determines that a 1099 worker was actually an employee, you can be held responsible for workers comp premiums on their earnings, penalties for failing to carry coverage, and the full cost of any injuries they suffered while working for you. This exposure can be significant, particularly if you use many contractors over multiple years.
How to Protect Yourself When Using Contractors
The best protection when using contractors is to require each one to carry their own workers comp coverage and provide a current certificate of insurance before starting work. Keep COIs on file for every contractor you use. At audit time, contractors with valid COIs are typically excluded from your policy’s payroll calculation.
When Contractors Cannot Get Their Own Coverage
In some industries and states, independent contractors struggle to obtain their own workers comp coverage. If a contractor cannot provide a COI, their payments may be added to your policy at audit. This is another reason why COI collection is so important.
Get Guidance from Comp Matters Inc.
Comp Matters Inc. helps East Coast businesses navigate the contractor vs. employee question for workers comp purposes. Call (631) 248-2500 for a free consultation.
Recent Comments