Employee v. Contractor

In most states employers must buy workers’ compensation insurance to protect their employees.

Contractors are not employees and therefore you don’t need to buy workers’ compensation coverage for them.  Beware of trying to call an employee a contractor. If they look like employees and act like employees, they are employees.

Here is a common definition:

“Independent contractor means a person who performs services for another under contract, but who is not under the essential control or superintendence of the other person while performing those services.”

Here are some benchmarks:

-Does a contract exist for the person to perform a certain piece or kind of work at a fixed price?

-Does the person employ assistants with the right to supervise their activities?

-Does the person furnish any necessary tools, supplies, or materials?

-Does the person have the right to control the progress of the work, except as to final results?

-Is the work a part of the regular business of the employer?

-Is the person’s business or occupation typically of an independent nature?

-The amount of time for which the person is employed.

-The method of payment, whether by time or by job.

-Does the person receive a paycheck or do they make a profit / loss from the job?

-Does the person receive benefits similar to those of employees?

-Does the person accumulate vacation time or paid time off?

-Does the person purchase his own liability and/or workers’ compensation insurance?

The above are used as a whole to determine an individual’s status. Most state workers’ compensation laws include definitions or tests similar to the above. Talk with your insurance agent.

If you hire independent contractors, get a certificate of insurance showing that they have their own workers’ compensation so you don’t get hit with additional premiums at audit.

Last note on this topic. Falsely classifying an employee as an independent contractor is insurance fraud in many states. It can also land you in claim trouble if there is an injury. I can’t tell you how many times in twenty plus years that small company owners have winked and told me that they have no employees. It’s a dumb tactic that is more likely to land you in hot water.