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Workers' compensation for independent contractors

Independent contractors often do everything themselves until their workload justifies contracting someone else. Here's an overview of how these contract relationships affect workers' compensation needs.

Does an independent contractor need workers' compensation insurance?

In the IT industry, independent contractors and consultants often work for multiple clients. They most often need workers’ compensation insurance for two reasons:

  • A client contract demands they carry this coverage.
  • State laws require they have this coverage.

Let’s dive into each of these.

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

Your clients will save money by putting the burden of carrying workers’ compensation on you, the contractor. (If a contract requires you to pay for this coverage for yourself, be sure you’ve considered that cost when setting your fees.)

Now for the second scenario: 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. Many also 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

When you hire your own contractors or subcontractors, suddenly you’re in the shoes of the big tech company. Like them, 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.

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

Summary of workers' comp for independent contractors

Here's a quick summary of workers' compensation for independent contractors:

  • 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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