Workers’ comp coverage for employees vs. independent contractors - Southern Business Review


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Monday, March 25, 2019

Workers’ comp coverage for employees vs. independent contractors

Employers should know their liability in case an injury on the job occurs, especially as these lines continue to be blurred with the emergence of independent contractors in the workplace.

By 2020, about 40 percent of American workers will be independent contractors, according to a recent study by Intuit in partnership with Emergent Research.

Employees are traditionally covered under workers’ compensation, while independent contractors are typically accountable for their own coverage.

Russell E. Michiels Jr., assistant vice president and claims manager at casualty insurance company LUBA Workers’ Comp., said it’s crucial that employers fully understand the difference between both types of employees.

Courtesy LUBA Workers’ Comp.

Courtesy LUBA Workers’ Comp.

Michiels said a business owner should understand the workers’ comp requirements for the state or states in which the business operates.

“Under Louisiana statute, you’re required to have workers’ comp insurance, so that if you do have an employee who is injured he or she can get their medical and lost time benefits paid while they are out of work until they can return to work,” he said.

Michiels said these rules could vary by state. For example, in Louisiana all employers must provide worker’s compensation insurance for their employees. However, in Mississippi, all employers with five employees regularly employed are required by the law to have workers’ compensation insurance coverage.

“It’s important for an employer to understand, because there are fines associated with not having the proper coverages and there are potential additional liabilities for not having the proper coverages,” he said.

After determining coverage requirements, an employer should begin classifying workers in categories. An employee either works full-time, part-time or remotely for the business.

Michiels said this may also comprise employees who are deemed a “shared employee” and split time between employers. Independent contractors could be freelancers, subcontractors or workers hired through a staffing or employment agency, according to LUBA.

The biggest challenge Michiels is currently seeing is misclassifications in the construction industry among construction workers and contractors. And these lines can get even more blurred when dealing with subcontractors.
“There seems to be, at times, a misclassification in those areas,” he said. “If you hire one of these subcontractors and the subcontractor misclassifies an employee, that could come back on the general contractor. You could be exposed to indirect employees not being covered, and that could cost you additional money.”

Kelli Bondy Troutman, vice president and director of communications and community relations at LUBA, said that’s typically the nature of the construction business.

“There are often many subcontractors being used for multiple projects,” Troutman said.

Michiels said there are examples of different scenarios that could help an employer classify an employee.

-If an employer has the right to terminate employment without liability, the worker is likely an employee.

-If a worker obtains recurring payments from a business, they are likely an employee. If they are given a one-time payment, either at the beginning or end of a project, he or she is likely an independent contractor.

-If an employer has the capability to direct work regularly, the worker is likely an employee. If an employer merely agrees to the range of work and has the right to control only the result of the work and not the implementation of it, the worker is likely an independent contractor.

-In general, the more materials or tools an employer offers a worker to complete a task or service, the more likely it is for the particular worker to be viewed as an employee.

Michiels said if a worker is misclassified as an independent contractor, and is injured while working, the employer could be responsible to provide workers’ comp benefits.

He said it is essential to confirm insurance coverage for those considered independent contractors and urges businesses to ask for a Certificate of Liability insurance before work begins.

A Certificate of Insurance is distributed by an insurance carrier and authenticates that coverage is in place. According to LUBA, it is important to request that the certificate be produced by the contractor’s independent insurance agent instead of receiving it directly from the contractor to ensure the document is not fraudulent or expired. A business could also reach out to the insurance carrier stated on the certificate to confirm its authentication. LUBA urges that the certificate be checked again to ensure it includes coverage in all states that work is being performed.

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