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The Truth about Workers Comp
By Michael R. Sikora on 7/12/2012

Workers compensation is a crucial coverage that not only protects your employees, but provides you a line item for your budgeting. Given the increasing costs of workers compensation along with the expectation that costs in coverage and healthcare will continue to increase, it’s essential for you to be able to limit your exposure to accidents that can occur on the job. The combination of formal safety controls, quick claim reporting, and employee follow-up procedures will position your business to better manage losses that will greatly benefit your company.

But they're not my "employee"...

Maintaining workers compensation coverage is especially crucial when 1099’d individuals or subcontractors are utilized. State law dictates the relationship between an employer and employee for which these individuals or subcontractors often meet the definition. If this is the case, you are required to provide coverage that protects them, unless they evidence their own coverage. While you elude the necessity to pay taxes, health insurance, and other employee-type expenses, not carrying workers compensation can end up being a costly mistake. Fines begin at $5,000 and increase by $5,000 for each 10-day period of non-compliance.

By realizing that a 1099 is a mechanism for business to business transactions where each company maintains its own workers compensation insurance you can more easily understand how it would be that an uninsured individual or subcontractor can become your responsibility. When subcontracting work or hiring an outside consultant, always be sure that evidence of coverage is provided to you specifying that owners are included. If there is any concern that coverage may not be in place, require a second certificate prior to remitting final payment. Understanding the risk and how to prevent it keeps you from being blindsided by an unexpected claim from someone you do not even consider your employee.