Worker’s Compensation

Question: Who do I need to cover under my worker’s compensation policy?

Answer: You are responsible for providing workers’ compensation coverage to direct employees, uninsured contractors and their employees, and de facto employees.

1. Direct employees. An “employee” is someone who directly works for you rather than themselves or for a company for specified wages and for a specified time period. Employees are hired to perform a task or job requested by you in accordance with the operations of your business.
2. Uninsured Subcontractors and their Employees. Most states require, by statute, that a general contractor must provide workers’ compensation coverage to the employees of any subcontractor that is uninsured. A general contractor/subcontractor relationship begins when the following parties become contractually involved as follows: 1) an individual or business hires an 2) independent contractor to do some specified work; then the independent contractor hires a 3) subcontractor to perform some part of the total job. When that happens and the work is contracted/delegated to a subcontractor, the initial “independent contractor” becomes a “general contractor” by definition.
3. DeFacto Employees. According to the IRS, even if the individual is considered an “independent contractor”, they still may be classified as an “employee-in-fact” under workers’ compensation guidelines. This is called “de facto employees.” Listed below are a few tests that can be used to decide whether a worker is an “independent contractor” or an “employee-in-fact” (defacto employee).
4. Do you control the worker’s time and pay? For example, are they told what time to show up; when to go to lunch; when to stop working? Also, do you tell the worker how to do their job? This indicates control of the job site, and control is the primary characteristic of an employee/employer relationship. True independent contractors dictate their own schedule; leave when they desire; work according to their standards of quality. In general, the employer/contractor has little control and provides limited, if any, direction.
   1. Who is supplying tools and material for the job? A true independent contractor will supply their own tools and as a norm will supply the materials for that job. If the general contractor provides all this, he is asserting control and will be considered the employer.
   2. Does the “independent contractor” work for other contractors? Independent contractors work for many individuals and general contractors. If this isn’t the case, then this individual is called a “defacto employee” (employee-in-fact) no matter how they are used or how they are paid.
   3. Does the “independent contractor” have his own insurance? If not, then they will be considered an “employee-in-fact” under the laws of workers’ compensation.

The question you may need to ask yourself is… When an independent/subcontractor you hire has an injury on your job site, is that the time you truly want to find out if you are responsible for workers’ compensation?

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