Making informed decisions is essential when it comes to critical elements for business success like workers’ compensation insurance. In most states, business owners are required by law to provide their employees with workers’ comp coverage.
Of course, those requirements vary from state to state based on the size of the business, the number of employees, and other factors.
One confusing term that gives business owners a lot of trouble here is “1099 employee”.
Anyone who receives a 1099 form instead of a W-2 at the end of the year is an independent contractor, not an employee, and business owners are under no obligation to provide workers’ comp coverage for these professionals.
However, the situation is murkier than many understand.
There is no such thing as a 1099 employee. There are employees (whether full-time or part-time) and there are independent contractors (those who receive a 1099 form for tax purposes).
Unlike employees, independent contractors must provide their own benefits, such as insurance, and pay their own taxes, including payroll taxes.
Business owners can benefit from hiring independent contractors over in-house employees. It saves them money on payroll taxes and often streamlines business processes.
However, state and federal law both say that if an employer treats independent contractors like employees, they must be reclassified and become de facto employees, along with all the things that classification entails (including workers’ compensation).
Many businesses have been penalized for this and fined hundreds of thousands of dollars. It’s far wiser to simply account for independent contractors and pay for workers’ compensation protection.
In addition to business owners, independent contractors themselves should consider purchasing workers’ compensation insurance. Many states do not require this unless you’re part of a specific industry that’s particularly risky, such as construction or roofing.
Many independent contractors also assume their personal health insurance will cover their needs if they’re injured on the job. Unfortunately, most policies exclude these situations, leaving professionals with nowhere to turn.
It’s not just about protecting you, either. It’s also important for protecting your business. All independent contractors have legal and liability exposures, particularly if they work with other businesses or clients. They want you to have workers’ compensation to minimize those risks and liabilities.
If you cannot prove that you have coverage by showing a certificate of insurance (COI), they may not be willing to do business with you.
Ultimately, business owners should account for 1099 employees when it comes to workers’ compensation insurance. And independent contractors should also consider their protection and that of their business – workers’ compensation coverage is an important business asset.
At Kickstand Insurance, we work with professionals across all industries, including 1099 employees and companies that hire independent contractors. Our experts can help you choose the perfect level of protection for your needs, risk level, and budget.
Complete our online form – it takes just 5 minutes, and you’ll receive an instant, no-obligation quote!
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.