Workers' Compensation Insurance: Independent Contractor vs ...

By: Julie Brown

Most states mandate that employers provide Workers? Compensation for their employees. But what about independent contractors?? Let?s look at the definitions of each and the criteria to determine which classification is appropriate.

Definition of Independent Contractor

An independent contractor is self employed, he or she determines how the work is done and what materials or tools are used to perform the work. He or she incurs all the expenses related to the work being done and is able to realize either a profit or loss from the work.? Typically a written contract with the party for which the work is being done outlines the responsibility of each party.

Definition of Employee

An employee is not self employed.? The employee does not decide how the work is done or what materials or tools are to be used.? An employee does not typically carry the expense of the work and aside from compensation from wages does not realize the profit or loss from the work.? An employee is under the direction of the employer

Criteria to determine employee or independent

There are 3 primary categories used to determine whether a person is either an independent contractor or employee.

1. Behavioral control: Who determines how the work is done and what materials or tools will be used for the job.
2. Financial control: Who has the significant financial investment in the work?? Who pays the expenses incurred and who has the potential to realize profit or loss from the work?
3. Relationship of the parties:? Does a written contract exist between the two parties that explain who is responsible for what?

Conclusion

Workers compensation insurance is a legal requirement.? Even if a company believes it hired an independent contractor, they should still include them for workers? compensation insurance.? Without workers compensation, the company takes unnecessary risk in the event that one of the workers gets insured.?

A 1099 contractor which you legitimately hire as a contractor may claim, sue and win the following benefits:? unemployment insurance, disability benefits, workers compensation benefits by claiming they were actually an employee.? The contractor may claim you misclassified them as contractors when they were true employees and you did so to avoid paying taxes and benefits.

Workers compensation can help protect the company from such cases.

Purchase coverage for your 1099 contractors, it is better to be safe than sorry.

Disclaimer: The above content is a general overview which is provided for discussion purposes only and is not in any way meant as providing recommendations or legal counsel. It is not intended to apply to each circumstance. Because the facts and circumstances of every matter differ and the terms, conditions, exclusions and limitations contained in insurance policies vary, you should review your policy carefully and seek any legal counsel that may be necessary or appropriate.? Momentous is not responsible for any losses or damage resulting from reliance on the information contained herein.? If you would like to further discuss the issues raised here, you may contact?Julie Brown by phone 818-933-2704 or email: jbrown@mmibi.com

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