If your company has employees, you are 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 completely 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 control 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.
Workers’ Compensation Benefits
Employees -- Workers’ compensation provides injured employees with medical treatment and time lost compensation in the event of a serious injury.
Employers -- Workers’ compensation provides employers with the security that insurance will be there to help treat and restore injured workers.
Workers’ compensation is an important part of your business insurance program. It is required by state law that your business has workers’ compensation insurance.
As a business owner, you go to great lengths to provide a safe working environment for your employees. Workers’ compensation continues to be a significant cost driver for most employers, and understanding all the factors that can drive your workers' compensation cost can often be complex and time consuming.