Navigating Workers Comp When You’re an Independent Contractor

Navigating Workers Comp When You're an Independent Contractor

Generally speaking, Independent contractors aren’t eligible for workers’ compensation coverage. Workers’ compensation is the insurance system in place to provide benefits to employees who are injured on the job—the operative word here being “employees” — which independent contractors are not. Employers are not required to pay workers’ compensation insurance for independent contractors.

According to the Bureau of Labor Statistics, 15 million people were self-employed in 2015, or 10.1 percent of all American workers. With the so-called ‘freelancer economy’ on the rise, the country is seeing a huge increase of independent contractors. That’s an awful lot of people without insurance. If you are an independent contractor, you aren’t required to have it, but it may be in your best interest to purchase protection for yourself.

Let’s take a deeper look into identifying your employer status and determining if and when it’s optimal for you to invest in insurance.

Identifying Status

If you are employed at an organization and will obtain a W-2 form at the end of the tax year, then your employer is required by law to carry workers’ compensation insurance, except in Texas, where, according to CoverHound, employers can opt out of carrying workers’ compensation insurance but “can still be sued for uncompensated work injuries.” These benefits will cover expenses related to injuries caused at work—medical bills, lost wages, etc. In exchange for covering this insurance, employees will generally waive their right to take their employer to court for injuries sustained on the job (with some exceptions).

If you are a freelancer or independent contractor, you are considered ‘self-employed’ and will not automatically be covered by a company’s workers’ compensation insurance.

Understanding the technical and legal differences between being an ‘independent contractor’ or being an ‘employee’ is extremely important.

When You Should Get Additional Coverage

Depending on the potential for injury at a particular job, an employer may not be willing to hire independent contractors. If an uninsured independent contractor gets hurt on the job, they will often sue the organization for injuries or settle the matter out of court. For some occupations, mainly construction and other manual labor jobs that are less formal and more performance based, it’s helpful for employers to hire independent contractors who already have their own insurance coverage. With this in mind, it may be beneficial for independent contractors to invest in their own workers’ compensation insurance prior to taking a job. This is typically the case for manual labor jobs, like construction, where hazard potential is much higher than normal contract jobs. Although, any occupation may require contractors to have workers compensation insurance prior to hiring, even low-impact work like freelance writing.

Other Factors That May Be Weighed

Even if your employers classify you as independent contractor, you may be entitled to employee benefits without realizing it. Recent litigation involving FedEx delivery drivers found that that a contractor isn’t a contractor just because the employer decides to call them one. A wide range of factors will be weighed to determine the amount of independence granted to contractors. This includes:

  • The amount of the worker’s personal investment in equipment or materials.
  • The length of the contract assignment.
  • How integral the contractor’s services are to the overall operation of the organization.
  • The permanency of the relationship between contractor and employer.

Regardless of what your job title actually is, if your employment situation doesn’t fulfill the requirements of an independent contractor position, you may actually be considered an employee by a legal definition. This would make you eligible for all the benefits associated with being an employee and legally qualified to receive workers compensation insurance.

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