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Workers' compensation and 1099 contractors: Info for tech businesses

Small tech companies often do everything themselves until their workload justifies contracting some work to another person. Here's an overview of how these contract relationships affect workers' compensation needs.

When do IT consultants need workers’ compensation insurance?

An IT consultant – someone working on their own doing projects for multiple clients – most often requires workers’ compensation insurance for two reasons:

  • A client contract demands that the consultant carry this coverage.
  • State laws require that the consultant have this coverage.

Let’s dive into each of those.

Why would a client want an independent contractor to have workers’ compensation insurance? Because if the contractor doesn’t carry it (and pay for it), the client has to. That’s because workers’ comp laws in many states require protection for every employee, even if they have 1099 or independent contractor status.

Often, your clients will save money by putting the burden of carrying workers’ compensation on you, the consultant. (If you notice in a contract that you’re required to pay for this coverage for yourself, be sure you’ve considered that cost when setting your fees!)

Now for the second option: why would state laws require a single-person business owner to have workers’ comp? In fact, most don’t. Most states offer the option for single-person businesses to opt out of coverage (and many offer the opportunity for business owners to opt out of coverage for themselves, even if they have to carry it for their employees). But if your state does require you to carry coverage, you could face steep fines for failing to comply.

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Ask for proof of workers’ compensation insurance from your contractors

Beyond thinking about what to expect as an IT consultant working for a larger company, it’s a good idea to know what to do when you decide to hire your own contractors or subcontractors. When that happens, suddenly you’re in the shoes of the big technology company: you may have workers’ compensation obligations and you also have your bottom line to think about.

In some cases, it may make sense to require your contractors or subcontractors to carry their own workers’ compensation coverage so you don’t have to carry that coverage for them.

The best way to determine whether it’s a good idea to request workers’ comp from the people you’re contracting with is to consult with your attorney. He or she can advise you not only about laws and regulations where you live but also about how to update your employment contract to include language that requires coverage.

So to summarize:

  • Check laws in your state to determine whether you need to carry coverage.
  • Check language in contracts your clients give you to see whether they want you to carry coverage.
  • Update language in contracts you have with subcontractors to (possibly) include a requirement that they carry workers’ comp coverage.

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