Exclusively from Foa & Son
Workers Compensation is social insurance, based on the fundamental principle of universal coverage of employees. Throughout the U.S. the various worker’s compensation acts of states or jurisdictions guarantees payment of benefits to employees who sustain injuries that arise out of and in the course of their employment. Employees get a guaranteed and timely benefit in the form of coverage for their job injury related medical expenses and compensation for lost earning capacity, without the need to go to court to prove negligence on the part of their employer; in exchange, the employer is immunized from the cost and unpredictability of tort suits alleging negligence in causing or contributing to an employee’s injury.
This system has worked well for over 100 years, even though there is a certain bias built into the system, a fundamental presumption in favor of the injured employee which can occasionally lead to some abuses by individuals so inclined. More recently, though, changing trends in the modern workforce have led to challenges to the way the WC system works. Larger numbers of self-employed individuals, acting as independent contractors, is one of those problems.
There is a clash in social values between universal protection for employees and individual freedom to make a living as a self-employed person. The basic premise of the WC system is that employers assume financial responsibility for paying WC benefits for work injuries to their employees, but independent contractors are not employees. WC laws also typically make the purchase of WC insurance optional for self-employed workers, sole proprietors and working owners of closely held business entities.
This exemption creates another set of problems. Workers compensation is actually a great deal for most self-employed individuals, a combination of 100% coverage for medical expenses from work injuries and a disability income component. It’s an even better deal when you consider that almost all health insurance plans exclude coverage for work injuries. But the average self-employed individual or sole proprietor is not sophisticated about insurance, may not have access to good advice, and generally resists the idea of spending the few hundred dollars a year a WC policy would cost. Consequently, most do not carry worker’s compensation insurance.
The point of WC is to cover injured workers with minimum fuss and no litigation, but absent any other factor, that would not happen for an independent contractor who is an uninsured sole proprietor. Remember the bias in the system, though; the WC system wants injured workers to be covered. The way most states do that is by including some provision that if an independent contractor not insured for WC is injured, they can make a claim for WC benefits on the policy of the company that contracted with them.
So, for this reason, in most jurisdictions if you engage the services of an independent contractor who does not have a WC policy, and they suffer a job related injury, you own that claim and it will be covered under your WC policy. This is why premium auditors will ask if you used any contractors. If you answer yes, they want to see insurance certificates from them showing they had WC coverage. If not, you’ll be charged a premium for those uninsured contractors.
There is a simple solution to all these problems. Get evidence that any contractor you deal with carries WC insurance. Failing that, just understand that even though in all other respects they may qualify as an independent contractor, in the event of an on the job injury they could be treated just like one of your employees by your WC insurance company.