1099 Workers Comp Insurance: Do You Need It?

What is workers comp insurance?

Workers' comp insurance is a policy that protects you when any work-related injuries strike you. Also known as workman's compensation insurance, it covers all your medical bills for the period you're ill or injured. The coverage covers a wide range of damages that may include:

• Any illnesses resulting from your employer's negligence
• Burns from workplace fires
• Injuries caused by heavy lifting
• Fractures as a result of falls or slips
• Cuts from poor-quality work equipment

The policy offers several perks to employers, too. It allows them to get some much-needed peace of mind when running their business. In case one of their trusted employees is struck by misfortune, they can rest assured knowing the worker will get enough support until they return to their productive best.

Carrying workers comp also protects business owners from waves of lawsuits, in case unfortunate events, such as fire incidents or building collapses, ever arise. A single lawsuit can cripple most small businesses financially; heaps of lawsuits can put them out of business entirely. Employers can avoid possible bankruptcy by arming themselves with workers comp.  

It also helps them stay on the right side of the law. Skimping on worker's compensation insurance is a punishable offense in many states. It can attract huge fines, possibly putting many owners out of business.

To workers, the insurance coverage not only offers an opportunity to receive compensation for medical costs but also:

• Funeral expenses: In the worst-case scenario where you lose your life in a workplace accident, the policy will cover all the funeral expenses. It may also provide some compensation to your loved ones.
• Extra treatment costs: An injury can sometimes be so serious that you're unable to recover for months on end. A workers' comp policy can take care of the ongoing expenses such as therapy charges and doctor appointment costs.
• Lost wages: It enables you to recover some of the missed income during your time off.
• Disability: If a work-related illness leaves you disabled for a while, the coverage will support you until you're in better shape.

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How workers comp insurance works

Generally, the policy compensates you if you sustain an injury or illness when doing anything that may benefit your employer's business. In return, you lose the privilege of suing your employer for any damages.

The following are some of the requirements of the coverage:

• Your sustained damages should be work-related. If you get into an accident while you're commuting to work, you're not eligible for compensation. But if you're diagnosed with an illness after being exposed to toxic chemicals in your worksite, your insurer can cover the medical expenses and lost income.  
• You can't receive any workers' comp benefits if you intentionally harm yourself when working.
• Your insurance company can't compensate you if you were drunk at the time of the accident. Taking any drugs at work can prevent you from receiving workers' compensation benefits, as insurers often require you to undergo drug tests after accidents.  
• You have a limited period to file a claim. Generally, you have a timeframe of about two years following your work accident to report to an insurance company. Employees who were mentally unstable or underage at the time of the injury can get this period extended.

Does workers comp cover contractors?

Workers' comp coverage is a must-have for companies hiring full-time employees. Laws in almost all US states demand that employers carry workers' compensation insurance, even if they've employed a single worker.

When it comes to 1099 workers, however, the situation becomes a bit complex. Since they work under limited-time contracts, independent contractors usually take care of their own employment taxes, social security, and income irs taxes -- and this also includes workers comp insurance. In fact, employers aren't legally required to pay for an independent contractor's insurance.

Sometimes, though, business owners blur the line between the two statuses: employee and independent contractor. It has become a common practice for employers to misclassify them to avoid paying some costly expenses. Payroll taxes and insurance premiums, for instance, make up some of the costs that dubious employees often look to evade.

For this reason, distinguishing between independent contractors and company employees is crucial.

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1099 workers vs. employees  

There are several differences between the two classifications, and understanding them can help you get your coverage in order. For employers, getting to grips with them can help prevent run-ins with the law.

1099 workers

Independent contractors receive 1099-MISC forms from their employees; they show the total income they've received. Unlike full-time employees, 1099 workers are free to work for multiple clients at a time. Being self-employed, they can be considered business owners themselves.

Typically, if you're an independent contractor, you:

• Work using your own equipment
• Can hire your sub-contractors to help you
• Follow your own work schedule
• Apply for business licenses
• Can generate profit and count business losses

Employees

Employees are your typical worker; they receive a regular monthly salary, sign W2 forms, and commute to offices. As they work under someone, they can't be considered business owners, unlike 1099 workers. They follow business schedules and participate in employee company programs.

Benefits of hiring them over general contractors include:

• They commit fully to businesses.
• They provide more continuity.
• They require little training once they get up to speed with a company's operations.

If you're an employee, you:

• Follow specific instructions on work schedules
• Are trained by your employer
• Have a lasting relationship with your employer
• Get your working tools from the company

When do 1099 workers need workers comp insurance?

1099 workers are equally as likely as employees to suffer an occupational injury. Some of the risks they face include illnesses due to inactive lifestyles, digital eye strains from prolonged laptop use, and accidents during travel assignments.

Here are a few circumstances where applying for a workers' compensation policy makes sense for 1099 workers:

When you're exposed to higher risk

Naturally, some gigs put you at more risk than others. Workers in the construction industry, for instance, are more likely to sustain serious injuries compared to freelance designers. Therefore, purchasing a policy in such occupations should be a priority, given that you have much more to lose.

In fact, some states have made carrying a workman's comp compulsory for contractors in these high-risk occupations. California, for instance, requires roofers to buy coverage, even if they haven't hired any sub-contractors.  

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When your health insurance doesn't offer enough cover

A health insurance policy is a must-have for just about anyone. In case you're dealt a bad hand, the policy can cover your hospital treatment, ongoing rehabilitation, and medical exam fees. But for independent contractors, relying only on the health policy for all your insurance needs may be a bad idea.

You'll find that most health policies only offer coverage for injuries you get outside of work. This means that you'll have to take care of the medical bills by yourself if you suffer a workplace injury. To top it off, health insurance doesn't compensate you for the wages you lose when recovering from illness or injury.

Also, most 1099 workers don't purchase disability insurance policies. Workers comp can provide benefits to such workers when they're temporarily or permanently disabled following a severe workplace injury.

When you need to fulfill a work contract

Some employers expect 1099 workers to cater for their own insurance coverage, including workers comp. In fact, you may sometimes have to provide a Certificate of Insurance as part of your contract requirements.

Buying your own insurance can be beneficial to businesses in so many ways. Firstly, if you're injured working for them, they won't have to pay you a cent for your medical expenses. Secondly, it allows them to avoid the huge financial losses that come with lawsuits.

In fact, there have been previous cases of freelancers claiming to be company employees after getting injured on the job. To prevent this situation, employers try to free themselves from any liability by either enforcing a requirement for contractors to have their own policies or by steering clear of independent contractors altogether.

How much does 1099 workers compensation insurance cost?

The amount of premiums you pay for workers comp varies depending on several factors such as your state, type of job, and a number of subcontractors. Naturally, with higher levels of risk comes expensive premiums. So, if you're working for a business that has a long history of accidents, then you can expect to shell out big bucks for coverage.

With that in mind, you can't put a value on the peace of mind that having coverage gives you. It provides you a soft landing whenever you're hurt on the job, allowing you to focus on delivering your best work.  

Conclusion

When hiring employees, businesses are required by law to provide workers' compensation coverage. But when hiring independent contractors, companies are free from any insurance expenses. The responsibility of purchasing workers comp then falls on the contractors.

As we've seen in the guide above, some situations call for you to carry the policy. So consider the factors we've mentioned to see if the coverage should be a priority for you.