Hiring an independent contractor is easy.
But before you hire, there are a few must-know factors about independent contractors and independent contractors’ compensation.
In this post, we will walk you through the details related to independent contractor workers’ compensation. So, read on to clear all your doubts about workers' compensation for independent contractors.
What is Workers’ Compensation for Independent Contractors?
Workers’ compensation is an insurance policy that protects a proprietor and the employees from expenses related to illness and injuries that occur due to work performed.
Typically, workers’ compensation insurance covers employees.
So, can independent contractors get workers' compensation?
Yes. Independent contractors can get workers’ compensation. Workers' compensation insurance is important for independent contractors as the future is uncertain.
Since independent contractors go solo, they perform multiple tasks for their business. They might need to shift job sites, deliver services, etc. to keep all of their clients satisfied. So, the risk involved for independent contractors is more.
Workers’ compensation for independent contractors protects them from losses or expenses like medical bills that might result from performing a job.
Difference between Employee and Independent Contractor
There are several differences between an employee and an independent contractor. However, we have mentioned a few aspects that specify whether a worker is an employee or an independent contractor.
Typically, an employee is someone who;
- Works as directed by the employer
- Receives a fixed monthly compensation
- Uses company resources to perform a job; and
- Is controlled and supervised by the employer or a senior
On the other hand, an independent contractor is an individual who;
- Decides how and when to complete the work
- Charges fees per project (Independent contractors are either paid monthly, bi-monthly or hourly)
- Uses own resources and equipment to get the job done
- Is not controlled, trained, or supervised by the employer
For example, you hire two writers and one freelance graphics designer for your company.
Suppose you hire the writers on a fixed salary for full-time work. They will be your employees. The writers will then be entitled to employee benefits and will be in a long-term relationship with your company.
On the other hand, the freelance graphics designer works only when you have social media campaigns to work on. They use their own resources and receive payments per campaign. This designer will then be an independent contractor.
Do Independent Contractors need Workers’ Compensation?
As we have mentioned earlier, generally, workers’ compensation insurance protects employees. However, since independent contractors are proprietors and they work by themselves, workers' compensation for independent contractors is essential.
Here are the two reasons why independent contractors need workers’ comp.
Fulfill contract terms
A few businesses might require an independent contractor to have their insurance policies, including independent contractor workers comp insurance. This reduces the company’s liability. Plus, the chances of being financially liable are also reduced if the contractor suffers an injury while performing the work.
Avail the independent contractor workers compensation protection
The independent contractor workers compensation insurance protects against medical bills and business losses. Though independent contractors might have health insurance, most policies do not cover work-related illness or injury. The workers' compensation for independent contractors ensures protection for the contractor in case of work-related injuries. Independent contractor workers' comp covers the medical bills and lost wages.
How to get Workers’ Compensation Insurance for your Independent Contractor?
Like employees, independent contractors are not covered for medical expenses if they suffer injuries as a consequence of their work. Neither will they receive workers’ compensation benefits.
So, getting workman’s comp for independent contractors is a must. Here’s how they can get it.
The process of getting independent contractor workers comp starts with finding the best insurance company. And independent contractors must go for the insurance companies that cater to small businesses.
Below are the steps for independent contractors to find the best insurance company that fits their requirements.
- The first step includes checking the worker's compensation for independent contractors’ requirements in their state
- Next, the independent contractor must identify the necessary resources and documentation required to obtain a workers’ compensation estimate
- Finally, they can get a workers’ comp for independent contractors quote within a few minutes.
Who Needs Proof of Workers’ Comp Insurance?
Most states do not require self-employed independent contractors to have workers’ comp insurance. However, some businesses need independent contractors to carry their worker's compensation for independent contractors.
Some businesses or independent contractors who work in industries like,
- Roofing, or
- Electrical jobs
are required to get independent contractor workers’ compensation. Most businesses in these industries ask for an insurance certificate as a part of the work contract. With independent contractor workers’ compensation, contractors are protected against accidents that might occur on the worksite.
Other than these industries, an independent contractor can be a;
- Graphic designer,
- Education consultant,
- App developer, etc., and still get independent contractor workers’ comp.
The workers’ comp for independent contractors will guard the contractor against lost wages and medical expenses.
Factors Determining Cost of Workers’ Comp Insurance
Does workers comp cover independent contractors?
Now that you have the answer to this question, you must know about the cost-related factors of independent contractor workers comp.
Before independent contractors buy workers’ compensation insurance, they need to know the calculation of the insurance premiums.
Here are five factors that determine the cost of independent contractor workers comp insurance.
1. Industry/work type
What type of work does the independent contractor perform?
One of the most crucial factors determining the insurance cost is the contractor's type of work. The degree of risk differs in every sector. Hence, it is necessary to decide on the work or industry type.
For example, if an independent contractor's work is physically demanding, the risk level will be higher in terms of workplace injuries. Independent contractors working in mines, manufacturing units, transportation, etc., are exposed to more risks. So, the insurance cost is most likely to be high.
2. State laws
Workers’ comp for independent contractors-related laws and regulations vary from state to state. Hence, independent contractors need to know about the state laws and average workers comp’ insurance cost before purchasing one.
3. Business-specific details
The business-specifics details include the history of accidents or whether or not the independent contractor subcontracts work to other parties. These details also contribute a lot towards determining the cost of independent contractor workers' comp insurance.
Penalties for Failing to Carry Independent Contractor Workers’ Compensation Insurance
The laws that govern independent contractor workers’ comp insurance are not the same for every state. This is why there might be confusion for self-employed, independent contractors about buying workers’ compensation insurance.
For instance, it is not mandatory for anyone to purchase workers' comp coverage. But in New York, business owners must get workers’ comp insurance even if they employ one employee.
Similarly, the penalties for not carrying independent contractor workers’ comp insurance are also different in different states. For example;
- In New Jersey, failing to carry workers' comp is a criminal offense. Independent contractors might face a fine of $10,000 or imprisonment for up to 18 months.
- In Arizona, a civil penalty of $1000 might be applicable.
- In Massachusetts, independent contractors failing to carry workers’ compensation for independent contractors might result in a fine of $250 per day, criminal fines up to $1500, and jail time.
So, before independent contractors plan to get workers' compensation, they must be aware of the penalties that might fail to carry the insurance.
To avoid paying workers compensation for independent contractor penalties, independent contractors might take professional help. They can also clarify their classifications with employers. Knowing the regulations and working with the right people will help independent contractors understand how to avoid the penalties.
Other Insurances for an Independent Contractor
We are focusing on workers’ compensation for independent contractors. But there’s no harm in listing a few other insurances that might be useful for independent contractors.
Independent contractor workers' comp insurance differs from state to state. Each state has its own laws related to workers' compensation for independent contractors. However, there are a few other insurances that are essential to guard contractors against other liabilities.
Here are three insurances that might be necessary for independent contractors.
1. General liability
This insurance protects independent contractors from different claims including physical injury, advertising injury, personal injury, and property damage.
2. Errors and omissions
Errors and omissions insurance protects independent contractors against errors or mistakes made in the professional services rendered to the client.
3. Commercial auto insurance
If an independent contractor uses a vehicle for business purposes, commercial auto insurance is important. In case of accidents, the insurance helps in getting protection against the damages. Moreover, commercial auto insurance also helps in covering the costs related to property damage or physical injuries.
Make the Hiring Process of Independent Contractors Smooth with Multiplier
How much aware are you of the hiring process of an independent contractor? Or to be more specific, do you know how an independent contractor is compensated? New businesses don’t want to get into legal trouble by getting the independent contractor compensation process wrong!
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