Are your workers independent contractors or employees?

As an employer, you have different requirements for how you must treat workers considered employees, and those considered independent contractors.

From a workers’ compensation perspective, you are required to provide coverage for lost wages and medical costs due to work injuries for an employee, but not an independent contractor.

It’s important to know whether those who do work for you are considered employees or independent contractors under the law. It’s not always simple to determine.

IRS and workers’ compensation laws can define independent contractors differently

Don’t assume that someone considered an independent contractor for tax purposes is automatically considered one for workers’ compensation purposes.

The Internal Revenue Service may have different criteria than your state for establishing whether a worker can be considered an independent contractor versus an employee.

Every state is different, but in most states, for a worker to be considered an independent contractor for workers’ compensation purposes, the worker must have:

  • Control over how the work is performed
  • Ability to realize financial loss or gain based on how a project goes
  • Ownership of equipment to complete the job
  • Compensation on a per-job basis

These are just some basic criteria, and most states have additional requirements beyond these. Get details through your state’s department of labor. For example, the labor departments in Minnesota , Wisconsin and Iowa provide additional information online.

Tips for working with independent contractors

If you hire a subcontractor that lacks the proper workers’ compensation coverage, or doesn’t qualify as an independent contractor, it could put you at risk for liability if a work injury occurs, depending on which state the work is being performed in.

Here are some tips to avoid this situation, where applicable:

  • Confirm that the subcontractor is an independent contractor as defined by your state’s laws.
  • If the subcontractor uses employees, ask for a certificate of insurance as proof of workers’ compensation coverage.

Subcontractors with no employees can choose whether to purchase workers’ compensation insurance for themselves in most states. If they do have coverage, ask for a certificate of insurance for verification. Note that certificate of insurance verification alone does not qualify a subcontractor as an independent contractor. They still must meet all of the state’s criteria.

If they don’t have coverage: Request a copy of the subcontractor’s independent contractor registration form if applicable in your state. Some states have a registration process for independent contractors, and some don’t. Otherwise, ask for a copy of the subcontractor’s current license.

Note that a contractor registration form alone does not qualify a subcontractor as an independent contractor. You should also:

  • Check to see that the subcontractor is registered with the state as a business entity.
  • Request a Certificate of Insurance for General Liability covering the dates the work was performed with limits of at least $300,000.

Your agent can help

If you need help determining whether a subcontractor is an independent contractor or employee, don’t hesitate to ask your agent for help. This way, you’ll understand the implications for your workers’ compensation premium right away, rather than finding out you owe more than expected at the time of your premium audit.

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