Your subcontract workers may be considered employees under workers’ compensation law.
Our clients often ask us questions regarding how their subcontractors affect their insurance. One frequent concern is whether the subs fall under their workers’ compensation policy. Under workers’ compensation law, an employee can include part-time workers, seasonal, temporary, minors, trainees, immigrants, and working family members.
IRS verses Workers’ Compensation
First, it is important to understand that workers compensation law and the IRS do not use the same definition of “subcontractor”. If someone is paid by 1099, that may meet the IRS’ definition, but that person could still be considered an employee under state workers’ compensation law.
Definitions vary, but generally a person is considered an employee if ALL of the following are met:
- They are paid,
- The employer can hire and dismiss them, and
- The employer exercises control over how the work is performed.
For the first point, the employee can be paid by any means, whether by 1099, W-2, or cash. If they are compensated, #1 is satisfied. The second point addresses the employer’s authority. If the employer decides whether that person does or does not fill the position, they qualify. The third and last point amounts to how much control is exercised over the employee. This is, admittedly, where gray areas arise. But generally, if an employer tells someone how to do the job and provides tools for the work, they will qualify.
No Shorts Electric
Suppose I need a new light fixture in our office building. I hire a local electrician to do the job. I pay them, so #1 is YES. I decide who gets the job, so #2 is YES. However, the electrician brings his own tools. And since I don’t know anything about electricity, they perform the job without my interference, according to industry standards. Thus, #3 is a NO. This electrician is not an employee.
Assume I need help moving a copier from one office to another. I know someone perfect for the job, young Elmer with a strong back that I often use for tasks such as this. I pay, so #1 is YES. I selected Elmer, so #2 is a YES. If I have to supervise the move, telling him what to move and how to move it, #3 is a YES as well. Most states would say he is my employee and, if injured, could claim my workers’ compensation benefits.
ACME Copier Movers
Now assume the same situation, but instead of Elmer, I hire ACME Copier Movers. #1 is still a YES. I didn’t tell ACME who to bring to do the job, so #2 is NO. I tell ACME where to put the copier, but other than that the move is largely out of my hands, so #3 is a NO. Thus, if someone sprains a back during the move, my workers’ compensation is not affected.
If you have questions regarding whether a subcontractor could be considered an employee, just ask your agent. That’s why we’re here. For especially difficult cases, we may refer you to your state workers’ compensation commission.
Remember, every claim is different. Anyone injured on a job can try to claim workers compensation benefits. For disputed claims, it is up to the state workers’ compensation board to decide.
Speak to your insurance agent or Contact Us for more information. Each one of our clients is assigned a personal agent in our office.
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