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So you don’t have any employees on your books. You hire only Independent Contractors, and you issue them a 1099 at the end of the tax year. As a business owner you aren’t required to have it, so why should you write a Worker’s Compensation insurance policy?

There are actually ten criteria that would be used, even in a court of law to determine if a worker would be considered an independent contractor. All ten must be met and they are:

1. The contractor would have a Federal Employer Identification Number from the Federal Internal Revenue Service (IRS) or have filed business or self-employment income tax returns with the IRS based on work or service performed the previous calendar year;

2. Maintain a separate business establishment;

3. Perform work that is different than the primary work of the hiring
business and perform work for other businesses;

4. Operate under a specific contract, and is responsible for
satisfactory performance of work and is subject to profit or loss in
performing the specific work under such contract, and be in a position
to succeed or fail if the business’s expenses exceed income.

5. Obtain a liability insurance policy (and if appropriate, workers’
compensation and disability benefits insurance policies) under its own
Legal business name and Federal Employer Identification Number;

6. Have recurring business liabilities and obligations;

7. Have its own advertising such as commercials, listing in phone book
and/or  business cards;

8. Provide all equipment and materials necessary to fulfill the
contract;

9. Control the time and manner in which the work is to be done; and

10. The individual works under his/her own operating permit, contract
or authority.

I have had new customers come to me with tales of huge fines they have suffered for not covering “employees” for workers compensation coverage, the most recent one for over $20,000. So take these rules to heart.

FYI: If you do have a compensation policy, and you hire an independent contractor who does NOT have their own policy, be prepared to be charged, on audit, on your comp policy for their payroll.

Somewhere, in every business relationship, someone is going to pay for this coverage.