In the case of an accident, workers’ compensation helps to ensure that your business is protected and your employees have the resources they need to recover. As a small business owner, you may sometimes use independent contractors to help you manage your workflow.

Whether workers’ compensation covers independent contractors depends on the specifics of your existing insurance policies and the agreements you have in place with your contractors and clients. We’ll cover how workers’ comp insurance works, why you might need it, and how it applies to independent contractors you work with.

What are independent contractors?

First, it’s important to understand the difference between an employee and an independent contractor. While businesses may not have to carry workers’ comp for contractors, you should take care not to misclassify your crew as contractors rather than employees. In general, independent contractors have the right to control what work they do and how they do it, while employees are subject to the control of an employer.

From the perspective of the IRS, your employees’ income and taxes are reported on W2 forms. Independent contractors’ incomes are reported on 1099 forms with no tax withholding. States also have their own laws to classify employees vs. independent contractors. Misclassifying an employee as an independent contractor is illegal. There have been cases where misclassification was intentional in order to avoid paying employee benefits. This is a serious violation and can result in hefty fines from the IRS.

How does workers’ comp protect independent contractors?

When you purchase a workers’ comp policy to cover your employees and independent contractors, it can help to cover expenses including:

  • Accidents and injuries – Say you’re a furniture installation professional who uses a crew to complete jobs. If one of your employees incurs an injury while working, workers’ comp helps cover their medical bills and costs.
  • Illness – Say you’re a debris removal professional who works with a large team. If a member becomes ill as a result of exposure to waste, workers’ comp would help cover the cost of their treatment.
  • Repetitive Stress Injury – Say you’re a translator who employs a real-time typing interpreter to work alongside you. If they develop carpal tunnel as a result of their work, workers’ comp could help cover their physical therapy.
  • Disability – In some cases, a chronic injury or illness could prevent an employee from working and lead to lost wages. Workers’ comp would help cover their losses.

Is workers’ comp for independent contractors required?

While most states require businesses to carry workers’ comp for their employees, most don’t require workers’ compensation for independent contractors. The specific rules governing workers’ comp vary by state. That said, workers’ comp may be included as part of an agreement or contract, even if your state doesn’t require you to have it.

Like sole proprietors, independent contractors can purchase their own workers’ comp if they want to. If you’re an independent contractor who is worried about workplace safety, you may choose to buy your own policy. This can help to ensure that you’re covered in the event of an accident or health issue while at work.

Will you face penalties for not covering independent contractors?

All states (except for Texas) require that large and mid-sized businesses cover their employees. But the rules are different for independent contractors. While specific rules vary by state, there’s generally no penalty for not carrying workers’ comp for any independent contractors you work with. There’s also no penalty for sole proprietors or contractors who choose not to purchase workers’ comp for themselves.

That said, there are some circumstances when you might want to take out a workers’ compensation policy. When it comes to protecting your business—and the crew you work with—it’s better to be safe than sorry. That’s one reason why you may want to provide workers’ comp to employees and independent contractors, even if it’s not legally required.

Do sole proprietors need workers’ comp?

In most cases, sole proprietors aren’t required to purchase workers’ comp for themselves. However, sole proprietors may choose to purchase workers’ comp coverage. After all, there are some scenarios in which you know you’re not an employee, and you also know that there’s a chance of workplace injury.

Even if you have health insurance, that doesn’t mean it can cover all the costs related to an accident at work, especially when it comes to lost wages. That’s why independent contractor workers’ compensation is a smart thing to invest in.

Do 1099 employees need workers’ comp?

Like sole proprietors and independent contractors, 1099 employees aren’t required to purchase workers’ comp, but they may want to consider purchasing a policy for themselves. A “1099 employee” is actually something of a misnomer, since independent contractors, and not employees, receive 1099 forms.

Protect yourself and your employees

At Thimble, we want to take the worry of insurance off your plate so you can focus on what matters—your business. Workers’ compensation insurance can help to protect both your business and the people you work with. If you’re an independent contractor, you might want to consider taking out your own workers’ comp policy in addition to your health insurance.

With Thimble, you can easily click “Get a Quote” here or on the app and answer a few basic questions about your business to get a quote in minutes. We want you to take employee safety as seriously as the quality of your work.

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