Most business owners, whether they own a sole proprietorship, LLC or corporation, are aware that they need to carry workers’ compensation insurance to cover injuries if an employee is hurt on the job. These days however, many businesses are using independent contractors as workers. What happens when an independent contractor is injured while working for your business? You aren’t required to carry workers’ compensation for independent contractors. Are you going to have to pay the bill, or are you facing a potential lawsuit? Well, it depends.
Did you properly classify them as an independent contractor?
The first thing you might want to think about is whether or not you properly classified the worker as an independent contractor. It’s not uncommon for a business to call somebody an independent contractor, but for that person to actually be an employee. If you did properly classify them as an independent contractor then you probably aren’t going to have to worry about workers’ compensation being an issue. But you will have other issues to consider.
What might happen.
While employees are limited to using workers’ compensation as their only remedy for workplace injuries, independent contractors aren’t limited to that. They have other options they may pursue.
An injured independent contractor may file a lawsuit to recover damages by filing a civil lawsuit claiming that the employer is responsible through negligence or some failure to follow safety obligations, which led to the injury. That doesn’t mean they have a case, but it will be costly and time consuming to fight.
If the worker has been incorrectly classified as an independent contractor they may take a different route and claim that they are actually an employee, and you have misclassified them. In this case you are looking at potentially having to pay fines and penalties as well as any unpaid overtime and other benefits as a result of not having workers’ compensation to cover your employees. This often happens when there is confusion about the relationship - the company thinks the worker is an independent contractor, the worker thinks they are an employee and files a workers’ compensation claim after getting injured. Make sure there isn’t any confusion about the relationship you have with your workers.
One more consideration.
What about a situation where you hire a company, which is an independent contractor to your business, and they bring their own employees to work in your business and one of them is injured? The most likely scenario is that the contractor, which is a company, will have workers’ compensation to cover their employees, but it’s possible that the injured worker could file a 3rd party claim against you, claiming that you were negligent or failed to follow proper safety obligations, which lead to the injury.
How to protect yourself.
Of course all those scenarios above sound terrible, especially if you are a small business who is using independent contractors. Here are some steps you can take, depending on your situation, to try and avoid any of that:
- Make sure to properly classify all of your workers;
- Get a written agreement that spells out the relationship;
- Require your contractors to carry any necessary insurances, and have them provide you with a certificate of insurance;
- Be named as an additional insured on the independent contractors policies;
- Carry workers’ compensation insurance, many businesses do this even if they are using contractors in order to avoid a situation where they are in trouble for misclassification;
- Monitor the relationship regularly and make any necessary adjustments as it evolves, it may end up that the worker has actually turned into an employee and you can adjust accordingly.
Managing worker classification can be difficult and is sometimes a moving target. If you need help or want a free consultation, contact us to see how we can be of assistance.