What Independent Contractors Need to Know About Workers’ Compensation

As an independent contractor, you may not think you have to purchase workers’ compensation coverage, nor do you expect anyone hiring you for a job to cover you under their policy.
However, this distinction isn’t always clear cut. You may need to purchase workers’ compensation coverage to protect those that you work with in the following scenarios.
For the Contractor
While workers’ compensation is not mandatory for all independent contractors, some states still require you to purchase coverage, even if you work alone. If you work by yourself and employ no one else, you can be exempt, but you may need coverage for the following:

• If you hire full-time staff to assist you with projects, you will need workers’ compensation coverage.
• Although a state may not require you to have coverage, certain clients may. During the contractual stage, be prepared to show proof of insurance, or else you could risk losing a job.
• If you need a contractor’s license, some states require you to have workers’ compensation coverage, with some exceptions. One, if you don’t employ anyone, you can file for a state exemption. Two, if you do need coverage, interruption to your policy can suspend your contractor’s license. Third, if you perform a job without workers’ compensation coverage and without a license, states consider this illegal.
• If you work in a labor-intensive field like construction, workers’ compensation coverage can serve as support in case an injury occurs on the job.

Beyond these scenarios, there is a gray area in terms of who is licensed and who you employ. For instance, you can file for an exemption if you’re an out-of-state licensed contractor who has not hired employees from the state you’re working in. However, while you are not required to have workers’ compensation coverage in that state, you need to show proof of coverage in the state your business is located.
For Employers Hiring Contractors
Considered a cost-saving practice, employers will hire individuals, but classify them as contractors to avoid paying insurance and workers’ compensation costs. However, the employer can experience a major financial hit that could put him or her out of business:

• If you misrepresent your employees on paper, your company can be subject to criminal prosecution and you’ll be expected to pay fines and back taxes.
• Because they’re not covered by workers’ compensation, your contractors can sue you for any injuries sustained on the job. While workers’ compensation prevents your employees from suing you, lawsuits concerning employee safety and personal injury have no cap on the amount an injured worker can recoup in damages. Depending on the court ruling, this could spell out financial ruin for your company.
• If a contract worker has a schedule and responsibilities similar to those for a full-time employee, he or she can take your business to court to dispute contractor status and sue for workers’ compensation benefits in the event of an injury.

If you’re a contract employee in Connecticut, make sure you have sufficient coverage for yourself, anyone you employ and any client hiring you for a job. If you’re looking for workers’ compensation coverage, give Ion Insurance a call at 203.439.2815.