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Businesses need to be careful deciding which workers need workers’ comp coverage


Kelli Bondy Troutman

Russell Michiels

It has been estimated that by 2020, about 40 percent of American workers will independent contractors. That could have important considerations for businesses when deciding which employees need to be covered by workers’ comp. Just because someone works remotely for a business, for example, doesn’t necessarily mean the business doesn’t need to provide workers’ comp coverage.

Kelli Bondy Troutman, vice president, director of communications, LUBA Workers’ Comp, said it is commonly known that employees are covered under workers’ compensation and independent contractors are responsible for their own coverage. It is important the employers determine which is which because if a worker is injured and should have been covered under workers’ comp, it can be very costly or even crippling for the business.

Troutman said making the determination of which workers should be covered by workers’ comp may not always be straightforward.

“With employers increasingly hiring contract workers, it’s important to understand where liability can exist should an on-the-job injury occur,” Troutman said. “The first thing a business owner should familiarize themselves with is the workers’ comp requirements for the state(s) in which they operate. In Mississippi, all employers with five employees regularly employed are required by the law to have workers’ compensation insurance coverage.”

Employees can be those working full-time, part-time, or remotely for your business. Troutman said this can also include employees who are “shared employee” and split time between employers. Independent contractors can be freelancers, subcontractors or workers hired through a staffing or employment agency.     

Troutman said once an employer has made sure to properly classify people who do work for them, it is then equally important to verify insurance coverage for those deemed independent contractors. This due diligence on the front endcan avoid unforeseen costs on the back end.

“In order to do so, a business should ask for a certificate of workers’ comp insurance before work begins,” Troutman said. “A certificate of insurance is issued by an insurance carrier and verifies that coverage is in place. It is a best practice to request that the certificate be produced by the contractor’s independent insurance agent (rather than receiving it directly from the contractor) to ensure that it’s not fraudulent or expired. If a business wants to take an extra precaution, they can contact the insurance carrier listed on the certificate directly to confirm coverage. Additionally, the certificate should be checked to make sure it includes coverage in all of the states where work will be done.”

Russell Michiels, assistant vice president, claims manager for LUBA Workers’ Comp, said misclassification happens when employers think workers are independent contractors when they are not.

“For employers, it looks like cost less up front,” Michiels said. “But at the end of day, there is a lot of exposure for employers if they misclassify someone. If you think someone is an independent contractor and they are not, you are taking on a lot of exposure that insurance companies should be taking on for you. The main goal for workers’ comp is to make sure when someone is injured, he or she is property treated and gets back to work. If the employee is misclassified, an employer has to take on that liability. It is not a cost that an employer would want to cover.”

Michiels said the following factors tend to indicate someone is an independent contractor and not an employee.

*There is not a lot of supervision or control over the worker.

*The business has the right to terminate employment without liability.

*The worker can turn down work without liability.

*The worker provides his or her own tools.

*The worker works for a number of different companies.

*The worker operates under a different business name than the company or companies work is being done for.

*Someone gets paid a certain amount to complete a job, rather than earning a regular salary.

Other factors he said are important to consider is how risky the work is and the  relationship of the worker to the firm.

“Are federal and state taxes withheld from the amount paid to the worker?” Michiels asked. “Just because you issue a 1099 doesn’t mean someone will definitely be an independent contractor. If you are hiring independent contractors, it is important to require them to carry workers’ comp insurance?”

In construction, it is important for general contractors using subcontractors to make sure that subcontractors that are insured. Get a certificate of workers’ comp insurance from them stating they have the proper coverages.

“We want all people to make sure they have the proper coverage,” Michiels said. “If someone is unsure if an employee is an independent contractor or not, they should consult their insurance agent to make sure they have the proper coverages.”

LUBA is a regional workers’ comp carrier that services Mississippi, Louisiana, Arkansas and Texas.

The State of Mississippi has information online regarding worker classification.  see https://mdes.ms.gov/employers/unemployment-tax/reporting-and-filing/worker-classification/.


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About Becky Gillette