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Breaking Down Workers’ Compensation for Independent Contractors

Breaking Down Workers’ Compensation for Independent ContractorsWorkers’ Compensation for independent contractors can be a complicated business. Coverage can be expensive, but if an independent contractor without coverage was to get injured while working for an employer, the resulting medical bills may be even more costly. So as an insurance agent, what do you need to know about workers’ comp coverage for those of your clients who are independent contractors or those who employ them?

What is an independent contractor?

To determine this, several questions must be asked:

  • Does the employer control the business aspect of the worker’s job? (Tools and expenses, etc)
  • Are there employee benefits provided to the worker, like pension or healthcare?
  • Will the employer continue the relationship with the employee after their current project is completed?
  • Does the employer control how/when the job is done by the worker?

If the answer to any or all of the above questions is “yes,” there is a strong possibility that the worker in question is an employee and not an independent contractor. Some businesses will attempt to classify employees as independent contractors to avoid paying for workers’ compensation coverage, taxes and other employment-related costs. However, if an employee is misclassified as independent contractor, they employer can be subject to costly penalties and legal ramifications. Signed agreements stating that the worker is an “independent contractor” can be insufficient proof to qualify the worker as such.

If the worker is truly an independent contractor, they may want to consider purchasing their own workers’ compensation coverage on top of their existing health and work related insurance policies.

Why should an independent contractor purchase their own workers compensation coverage?

In industries with a higher-than-average instance of injuries (construction and manufacturing for example), it may be beneficial for the independent contractor to hold their own workers comp insurance policy. Some contracts may even require the contractor to hold a workers’ comp policy. Even if the contractor already has health insurance, most policies exclude coverage for work-related illnesses and injuries. Purchasing independent contractor workers’ comp insurance ensures that medical bills and lost income will be covered in the event of a work-related injury.

What do insurance agents need to know to support their independent contractor customers?

Agents should have a good understanding of each customer’s relationship with the businesses they work with, and should also have excellent knowledge of the workers’ compensation coverages their brokerage can offer to independent contractor customers. Additionally, a strong awareness surrounding the different state laws on workers’ comp exemptions is helpful in making sure customers are in compliance.

Navigating workers’ compensation can be confusing for independent contractors, but a knowledgeable workers’ compensation broker can make the process go smoothly and keep customers safe, healthy and happy.

About ASIA Workers’ Compensation

Associated Specialty Insurance Agency, Inc. has been “The Workers’ Compensation Specialist for Brokers and Agents” for the past two decades and is committed to providing brokers and insurance agents across the East Coast with expertise and services to develop a Workers’ Compensation policy. For more information about how we can assist you with claims management, anti-fraud measures, and more call (610) 543-5510 to speak with one of our professionals.

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