Do I Need Workers' Comp for Independent Contractors?

Michael Galvan

Technology has made it easier than ever to supplement your workforce with outside hires. The “Gig Economy” has helped spur the decentralization of labor, and both large and small businesses are now employing legions of freelancers and independent contractors. This influx of workers has fundamentally changed the way many companies structure their business model.

Even in this era of change, there are still important government mandates which must be met. One of the most important areas businesses need to be aware of is the workers'compensation system. Any worker can get injured, and effectively handling the claim is crucial to their personal well-being and the health of the business. 

Independent contractors and employees are treated differently by the workers’ compensation system. Knowing the difference between what’s required for contractors and employees is an important part of an employer’s injury care plan. Business owners, safety officers, and risk management experts need to know how these two classifications affect employers.

How does workers' comp impact my employees?

Employers are required by law to carry workers’ compensation insurance for all their employees. The first comprehensive workers' compensation law in the United States was passed in Wisconsin in 1911.  Other states followed, and the last  to pass workers' compensation legislation was Mississippi in 1948.  While the modern system of WC is complex and varies from state to state, the central tenet of the WC statutes in all of the states is that of "no-fault" insurance.  Industrial accidents are accepted as a fact of life, and the system exists to deal with their financial consequences in as expeditious a manner as possible. 

How does workers' comp impact my independent contractors? 

Employers are not required to provide insurance for independent contractors, although most states require that any business employing independent contractors takes steps to ensure that those contractors have their own independent workers’ compensation insurance. Ensuring that all independent contractors have workers’ compensation insurance protects the business from liability if the contractor is injured. It is a good idea to only hire independent contractors after you have their coverage and certifications on file.

Although regulations vary from state to state, there are some general principles that are used to determine whether or not a worker qualifies as an independent contractor. Unlike employees, independent contractors generally have their own equipment, work for multiple businesses doing the same task, have occupational freedom to accomplish their goals, and may have a separate business license. Here is a longer list of points that state governments may use in deciding whether or not an injured worker is an employee or individual contractor.

  1. Does the worker have an independent ability to control the time and manner in which  his work is to be accomplished?
  2. Does the worker have his own tools and equipment?
  3. Is the worker highly skilled and performs a single job, or does he receive training from the employer and conduct regular work for the same company?
  4. Can the worker hire others?
  5. Does the worker carry his own workers’ compensation policy?
  6. How long ago was the worker hired?
  7. Does the worker maintain a separate office and incur business-related expenses?
  8. Does the worker pay taxes as a business and have a Federal Employer Identification Number?
  9. Does the worker function in an independent manner?
  10. How is the worker paid?
  11. What does the contract between the worker and the employer look like?
  12.  Does the worker hold a state license?
  13.  Can the worker make a profit or suffer a loss?

Still unsure about managing the workers' comp system? Working with an occupational medicine provider could be your solution.