If your company has employees, you may be required to buy workers’ compensation insurance. Some states do allow people to opt out of the system if they can prove financial responsibility, but that is only in two or three states in the entire country. If you have employees, you are most likely required to carry workers’ compensation.
One question we often get asked is, what is an employee? An employee can be a full-time or part-time person, working on behalf of the company. Temporary and seasonal staff can also be defined as employees. Many people seem to think that just because someone isn’t a full-time employee, they don’t need to have workers’ compensation coverage. Not true. Under all these cases you are required to have workers’ compensation insurance.
The way you pay your employee does not impact whether or not they are considered an employee. You can 1099 somebody and have him, or her withhold his or her own taxes, and you are still required to carry workers’ compensation coverage on that person. Don’t confuse tax laws and workers’ compensation laws. These laws and statutes are entirely unrelated.
Here are a few additional tests to determine the employer/employee relationship:
- Do you control the workplace?
- If the person takes direction from ownership or management, they are employees.
- Do you supervise them?
- Is their time controlled (lunch, breaks, etc.)?
What about independent contractors?
An independent contractor is someone who owns their own business, so they control their own working hours. They manage how they get the job done. They are the people to which you give a project, they return a completed project, and they are usually completely unsupervised by you. So, if you have someone who fits into this definition, you probably don’t need to carry workers’ compensation coverage on that person. However, it is always a good idea to call is to help you review each situation.
This information is intended for the client, individual or entity to which it is addressed. These articles contain concepts and opinions, and are not intended to represent the consensus of the insurance or risk community, nor to provide professional legal or tax advice. Please seek professional legal or tax counsel before making any decisions. The information provided does not change or modify any insurance policy, only the actual terms of the in-force policies will govern claim settlements.