Independent contractors are generally responsible for their own insurance coverage. Many choose to enroll in a general liability policy even when it is not required. This type of independent contractor liability insurance provides coverage for injuries, property damage and related lawsuits. Read more
Being an independent contractor can be a lucrative, enjoyable mode of work. You can take on as many projects at once as you want and complete them completely in a manner of your choosing, so long as the end results are satisfactory.
While traits like these can make independent contracting flexible and convenient, there are plenty of peripheral issues and insurance policies to be aware of before venturing into a relationship with a contracting party. Overlooking these issues could create a number of financial, legal and work-related headaches for you in the not-too-far off future. Read more
Employee vs. Independent Contractor Checklist
With the new healthcare laws into effect combined with the cost of workers compensation, providing benefits to employees has become more expensive than ever before. Many employers are looking to downsize staff and bring in independent contractors to fill the gap. It is important, however, to be sure you are not misclassifying employees as contractors. Doing so could present a high degree of liability for you that could bring severe damage to your business. It’s vital to understand what constitutes a 1099 worker and construct an employee vs. independent contractor checklist.
A Growing Epidemic
Recent figures estimate that over a third of businesses have misclassified employees as 1099, or independent contract workers. In the construction industry, low wages and a lack of regulation have become epidemic, and misclassification has resulted in estimated figures nearing $100 million in unpaid workers comp insurance premiums. This doesn’t account for the loss of FMLA, unemployment, overtime and safe workplace protections.
Employee misclassification also results in workers having to pay more taxes than they should, because they are paying the employer’s portion of social security tax, which for contractors is called the “self-employment tax.” While this may seem advantageous to the company looking to save money on their books, it is becoming a real problem in federal tax loss. It is also, so far as the IRS is concerned, fraud.
Determining the Difference
An independent contractor is someone who is self-employed. If the worker controls or directs the nature and means of the work being done (what to do and how to do it), they are an independent contractor. If the employer controls and dictates the services performed and how they are done, the worker is an employee. Finally, if an employer-employee relationship is in place, the worker cannot be an independent contractor. There are three basic factors that should form the basis of your employee vs. independent contractor checklist. These factors are:
- Do you control how the worker performs his duties and exactly what those duties are? This forms the Behavioral aspect of the issue.
- Are your employees’ business aspects controlled by you? That is, do you determine how the worker is paid, whether they get reimbursed for expenses and who pays for and supplies tools, equipment and the like? This is the Financial consideration.
- Do you have written contracts for employee benefits? Is the relationship ongoing or for a set period of time? Does your worker perform a key role in your business? This is the Relationship aspect of employment.
Misclassification of an employee is considered fraud by the IRS. At very least you will be responsible for paying back employment taxes for the worker in question and may be held liable for deserved benefits that you have yet to provide. In addition, you run the risk of being reported. Any worker who thinks they have been misclassified may complete Form 8919 to report your share of these taxes.
For more information on liability insurance and the employee vs. independent contractor checklist, see our informational page, and get in touch with us for a review and quote today!
The insurance world, if you do not live in it all the time, can be a bit like being stuck in a tidal wave. It moves quickly. You spin around a lot. You get dizzy. And, if you do not know how to swim, you are going to end up in a lot of trouble (nobody enjoys figuratively drowning). You do not deserve that and we feel as though, with some insurance companies, there is a bit of a double standard. They expect you to know information that you probably have not had time to examine. You are a contractor after all, you work long hours and insurance is probably the last thing on your mind.
Asking you to know everything about insurance would be a bit like asking us to go onto your worksite and erect a building with no prior training. We would probably get hurt, the structure may or may not set on fire and that would be that (we could probably build a dog house though). So, we do not expect you to come into our office and know the ins-and-outs of your insurance needs (that is what we are here for). But, just like you would expect us to have some basic skills before we meet with you, there are some basic terms you will need to understand to make sure we can make the most out of your time. These are the three policies you need.
General Liability Insurance
If you are a contractor then it is almost guaranteed that you will need general liability insurance. In most states liability insurance is required by law so you are going to want to make sure you have this policy in your insurance arsenal. Liability insurance covers you from damages and injuries that may occur on your property and will cover any legal fees that are associated with those damages.
Workers compensation may be the most popular insurance policy we sell. Also required by law, workers compensation will protect you and your employees in the event that someone gets injured. Workers comp will cover your employees’ medical bills and, if they cannot come back to work, this policy will pay up to two-thirds of your employees’ salary until they can return to work. If they cannot return to work workers comp will, under most policies, last until the injured individual reaches retirement.
Contractors Bonds Insurance
Contractors’ bonds insurance may be required by law (or the company) depending on the size of the project you are working on as well as the company you are working for. There are a few different kinds of bonds that you may need (which we can talk about at a later date) but most of them are designed to serve as an additional form of liability protection when disaster strikes.
We hope these three terms give you a better idea of the insurance policies you may need but if you have any further questions please feel free to give us a call at 1-800-649-9094. We look forward to hearing from you!
In our last post, we talked about the increasing prevalence of employee misclassification in the construction industry. The reason this is so problematic in construction especially is that there are often independent contractors working on different construction jobs, so classifying workers in this way doesn’t appear to be incorrect. The reality of it, though, is that if a worker is doing all of the same tasks as an employee, and is following the regulations imposed upon employees, it’s likely a misclassification to call that worker an independent contractor. Read more