Understanding Workers’ Comp for "1099 Employees"
One of the most important types of insurance a small business can have is workers’ compensation (also called workers’ comp or workman’s comp). That’s because workers’ comp covers medical bills and lost wages for employees who are hurt in on-the-job accidents. This benefits the employee, of course, but also the company since assisting employees with their healthcare expenses builds goodwill and helps the employee return to work sooner.
Workers’ comp can also pay a death benefit to surviving family members if an employee dies at work. Plus, the policy provides employer liability coverage that can protect a business against employee losses not covered by workers' compensation insurance or lawsuits filed by third parties that are related to the workplace incident.
Securing coverage is also crucial because states require virtually all companies with employees to have workers’ comp. If you’re caught without coverage, you can face fines and penalties. That’s true even if you never have to file a claim.
Obtaining workers’ comp insurance is easy. You can buy your policy online with coverage active for your employees as soon as the next day in some instances. However, there is an area that some companies find confusing—how requirements for 1099 workers (independent contractors or subcontractors) factor into the equation.
An Important Note About the Inaccurate Term “1099 Employees”
A conversation about independent contractors and workers’ comp should start with a clarification about a commonly used term: 1099 employees. The meaning may be clear to people who use it, but the term is inaccurate.
People who perform work for your company are either W-2 employees or 1099 independent contractors. W-2 employees (named for the form they receive from you annually) are people who get regular wages and benefits from your company. Workers who are 1099 independent contractors get paid for completing specific tasks.
So, someone is either an employee or a 1099 independent contractor. The term 1099 employee or references to 1099 employee insurance incorrectly blend the two descriptions and should be avoided to prevent confusion.
Independent Contractors and Workers’ Comp
If your business exclusively uses 1099 workers and not employees, you may be able to get an exemption from the state from having to purchase workers' compensation insurance.
If you have a workers' compensation policy and use subcontractors, be sure to collect Certificates of Insurance (COIs) for workers' compensation coverage purchased by the subcontractor. If you don't collect a COI from the subcontractor, your insurance company will likely charge you for workers' compensation insurance for the workers employed by the subcontractor.
It’s common for businesses to want to classify workers as 1099 independent contractors since they can avoid having to pay payroll taxes on amounts paid to those workers. But government entities, including federal agencies like the Internal Revenue Service (IRS) and the Department of Labor (DOL), look closely at the classifications companies apply to their workers and aggressively pursue those that make intentional misrepresentations, which is a violation of tax law.
These government entities can administer significant fines and other penalties if they determine that a worker is incorrectly classified as a 1099 independent contractor.
Independent Contractors and Workers’ Comp
According the the IRS, a worker is more likely a 1099 independent contractor if:
If you have questions about workers’ comp insurance and independent contractors, our licensed insurance experts are happy to assist you.
Workers’ Comp Insurance From a Trusted Source
Meeting your workers’ comp insurance obligation is essential. So is getting your policy from an insurer you can rely on if an employee has to file a claim.
biBERK is a Berkshire Hathaway Insurance Group company and leading provider of business insurance online. As an organization, we have over 75 years of insurance experience and millions of satisfied customers. What’s more, we paid $38 billion in claims in 2020. And because we sell insurance directly to you, we can do so at savings of up to 20% over other providers.
Bottom line: You can trust biBERK for affordable workers’ comp insurance, attentive customer service, and prompt claims payment.