When Do You Need Workers Compensation Insurance?

All business owners should know how important it is to provide a safe environment for their employees. Still, however safe you might try to make things, there is no guarantee that your business is accident-proof. That’s why in most states, employers must carry workers’ compensation insurance. You have to have a way to compensate them for injuries that they sustain on the job.

When an employer hires at least one full- or part-time employee, they might have to buy workers’ compensation, though state laws vary on the minimum employee requirement. However, where ambiguity arises is when it comes to contractors. Are they your employees? Do you have to provide them with workers’ compensation insurance?

Defining Employees and Independent Contractors

An employee is someone whose job is tied directly to the employer. Employees work for the employer in specific times, in specific ways. Contractors, on the other hand, might be hired by companies to do specific work. However, they have a lot more autonomy from the business itself. Their job is not necessarily tied directly to your company.

The differences between contractors and full-time employees are often very subtle, particularly in today’s economy. Therefore, it helps to sometimes work with an employment attorney to determine if contractors are actually employees.

This matters because employers have much different obligations to employees than they might to contractors. Indeed, it can impact whether you have to offer workers’ compensation insurance to these parties if they get hurt while working for you.

Workers Compensation and Independent Contractors

If you work with an independent contractor, then you essentially hire someone on a contractual basis. They generally have a narrowly defined role, and while they do receive pay from you, they will likely not qualify for health benefits or perform certain extra duties outside of their scope of work.

Therefore, they are not incorporated into your full business structure. As a result, they are not full-time employees in the legal sense. Therefore, they often do not qualify for workers’ compensation through your business’s policy. They might receive their workers’ compensation through their own policy, or through their own employer (if that employer contracts them to your business).

If a contractor sues your business because they got hurt on the job, they might be able to receive compensation from you. To do so, however, they will likely have to prove that you negligently caused their injuries. Therefore, if you have no fault in the injury, you shouldn’t have to repay the contractor. Still, it’s important to have appropriate liability insurance to protect you in these cases.

Keep in mind, all states have vastly different workers’ compensation laws. That's why you should always work with your attorney and commercial insurer to determine comprehensively what your workers’ compensation obligations are.