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Do 1099 Employees Need Workers’ Comp?

Do 1099 Employees Need Workers' Comp

If you run a business, you might have wondered “Do 1099 employees need workers comp?”. Well, if you have, it’s about time to find if they do.

In premise, you should at least consider it. Not having workers’ compensation can hurt your business, if an independent contractor tries to haunt you for not providing it.

In this article, we will cover everything you need to know so that you can make an educated decision when it comes to choosing.

If you want to cover all of the bases and secure your business, keep reading.

Who Is An Independent Contractor?

An independent contractor is anybody who provides services to another entity but is not classified as an employee. The IC works under an agreement that specifies duties performed, as well as the payments made. The company does not pay the IC a salary or provide benefits.

The IC pays its own taxes and medical insurance. The company that hires the IC reports payments using a 1099 income form. This form is what the contract uses to file their own taxes instead of a W2.

Common Profession Examples

When it comes to the type of work done by independent contractors, practically all work can be outsourced to 1099 employees. For instance:

  1. Consultants
  2. Nurses
  3. Photographers
  4. Entertainers
  5. Private Investigators
  6. Tutors
  7. Therapists
  8. Artists

All of these applications and can be independent contractors. So do 1099 employees need workers’ comp? Well, not necessarily, but they really do. 

These individuals face the same hazards that other employees do as well. They work without this safety, never knowing if the injury can interfere with their ability to earn an income. For the company that makes use of their services, the savings in workers’ comp tax and insurance is also a great benefit to the company.

Contractor vs Employee

Some businesses try to save insurance and payroll costs by hiring us. Typically, an employee is paid through a W-2 Form. If the business has control over the daily activities of a worker then the IC can be recognized as an employee.

For instance, assume a business hires an IC in a full-time capability for staff training. if the employers choose the schedule, the topics, and calendar, and requires the contract to develop programs to accommodate the business requirements, this will be deemed an employee relationship.

In general, contractors have many clients and have the freedom to set their own schedules. For instance, a business hires an IT specialist to provide services. The contractor can be on-call for troubleshooting whilst providing other services fro another client. This is a 1099 “employee”, and not a real employee.

Employers Take Advantage of Independent Contractors

Employers make use of ICs to save money. But it’s not as transparent as you would think. It all comes down to control over the contractor’s activities. As mentioned earlier, they might be deemed an employee if examined closely. 

The money-saving has led employers to misuse the classification of their full-time employees as ICs. These employees can work alongside real employees, doing the same work with the same gear. It often falls on the employee to complain upon their classification. Sometimes the employee doesn’t realize this is true until they get injured and apply for workers’ comp. 

Once they discover the harm done, the employer will have to pay significant penalties. Even if an individual receives 1099 instead of the W-2, they can still be covered under workers’ comp. Check the workers compensation requirements to determine if that’s the case.

The Fundamentals of Workers’ Compensation

Each state except for Texas has workers’ comp that requires employers to maintain this insurance for their employees. Employers who choose to avoid workers’ comp can end up responsible for paying a lot more than if they had the insurance. Failing to have the coverage also opens room for potential lawsuits from past “employees”.

The laws regarding the insurance vary in each state but are quite similar. For instance, Maryland law states that employers who have one or more employees must have insurance. In Kansa, it’s only mandatory for business with employees who have a gross payroll of over $20000.

In premise, a business must purchase the policy from the sate or independent provider. They will pay premiums just like any other type of insurance. When an employee gest hurt, they will file a claim. The coverage will pay their bills and help them support livelihood if they are unable to work. The amount of comps payment is usually 60% of a regular salary.

The primary benefit of the business is that workers’ comp protects them from lawsuits. The employee cannot sue for compensation that has been already paid out. Like any other law, some exceptions do exist, and the most important one to know regards independent contractors.

Do 1099 Employees Need Workers’ Comp?

Some employers will never even consider this. They only focus on getting the least possible cost for the operation of their business. Some employers might even think that their business mostly employes ICs, but later on they find out the hard way.

In any case, you already know that workers’ comp laws vary in each state. One of those variables is how the IC differs from a standard employee.

The newest definition of an independent contractor is described above. In each state, the Workplace Fraud Act addresses the misclassification of contractors. For instance, in the industry of construction, contractors are a common denominator. Do you know what’s also common? Injury and serious accidents that lead to disabilities and long-term injury.

Even full-time employees experience these and their medical bills will always exceed the worker’s comp benefits. Independent contractors don’t have this safety net, so it’s your responsibility to take care of those who make your business what it is.

Workers’ Comp Elaborated

Now that you have uncovered the answer to the question of “Do 1099 employees need workers’ comp?”, you are well on your way to support your workers’ who work diligently to provide for the business that helps the world. If you don’t value your employees, you don’t value your business and you don’t value yourself. Don’t put other people’s lives at risk for the sake of shaving off costs. If you’re interested in similar articles, feel free to check out the rest of our business-related articles on the sidebar. Mind your own business.

Hi, I'm Michael, a research writer with expertise in technology, education, business, finance, insurance, real estate, and legal insights. My goal is to share the newest updates and trends from these industries with you.

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