Employee or Independent Contractor

Do independent contractors need workers compensation insurance?

Employee or Independent Contractor

There are times when a law firm needs to hire an independent contractor. So how do you know if they should be covered on your workers compensation insurance policy? Under the Workers’ Compensation Law, most individuals providing services to a for-profit business will be deemed employees of that business. The employer must cover them for workers’ compensation insurance. This applies unless those services are specifically excluded as employment under the WCL.

For workers’ compensation insurance purposes, the term employee generally includes day labor, leased employees, borrowed employees, part-time employees, unpaid volunteers (including family members), and most subcontractors.

Many factors are used to decide whether an individual is an employee under the Workers’ Compensation Law. If a business meets any of the criteria listed below, and the individual hired does not meet the criteria listed under independent contractors or the services rendered are not specifically exempted as employment under the WCL, then that business must obtain a workers’ compensation insurance policy.

The factors that are considered to determine whether an individual is an employee within the meaning of the WCL and thus must be provided with workers’ compensation insurance coverage by the employer include:

Right to Control– The degree of direction and control a person or organization exercises over someone they contract with to perform a task is always a central issue in determining an employer-employee relationship. A person or organization controlling how the work is to be performed indicates that an employee performs the task. If the person doing the labor controls the time and manner in which the work is to be done, this may indicate that an independent contractor is doing the task. If an individual is truly independent, the individual generally works under his/her own operating permit, contract, or authority.

The character of Work Is the Same as Employer– Work being done that is consistent with the hiring business’s primary work indicates that an employee is doing the labor. Work done by a person different from the primary work of the hiring business may indicate an independent contractor is performing the task. (For example, someone installing shingles for a roofer is generally considered the employee of that roofer. Conversely, a plumber hired on a one-time basis to fix a broken pipe for a retail store owner is generally considered an independent contractor)

Method of Payment– Employees tend to be paid wages on an hourly, daily. Weekly or monthly basis. Naturally, employment is indicated if the hiring business withholds taxes and/or provides other employee benefits (Unemployment Insurance, health insurance, pensions, FICA, etc.) Whether the labor is paid using a W2 or 1099 Form for tax purposes does not matter determining an employer/employee relationship for workers’ compensation purposes. A business paying cash to an individual for services usually indicates that the individual is an employee. Payment made for the performance of the task as a whole may indicate an independent contractor is doing the task.

Furnishing Equipment/Materials– A business providing the equipment and/or materials used by people in performing the work indicates an employer-employee relationship.

Right to Hire/Fire– A business retaining the authority to hire and fire the individuals performing the work indicates an employee performs the work. An independent contractor retains a degree of control over the time when the work is to be accomplished and is not subject to be discharged by the hiring entity because of the method he chooses to perform the work. Naturally, an independent contractor’s services may be terminated if the services rendered do not meet contractual requirements)

All factors may be considered, and no one factor alone determines whether a person will be considered an employee under the WCL.

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