Workers Compensation Insurance – Independent Contractor vs. Employee

The difference between independent contractors and employees is a common debate within the insurance world. I wrote another post about it back in August, but the question continually arises, so it’s worth reinforcing. Determining which is which, employee vs. independent contractor is all fun and games until someone gets hurt. As an employer, think about the following points from the California State Compensation Insurance Fund before trying to dance around paying workers compensation insurance premiums.

Employees vs. Independent Contractors is a common debate for contractors and Work Comp insurance

California courts typically use a number of tests to determine whether an individual is an employee or an independent contractor. A crucial factor in determining employment status is the employer’s right to direct and control the work being performed. If you have the right to control the manner and means of the work performed, the courts have routinely decided that the “independent contractor” is actually your “employee”.

There are many other factors, but the reality is there is no definitive test to determine employee or an independent contractor. The following circumstances can help determine the relationship between the two. Among them, whether the person performing the service:

• Has the right to terminate the relationship at will.
• Is engaged in a distinct occupation or business.
• Has voluntarily chosen the burdens and benefits of self-employment.
• Has the skill required in the particular occupation.
• Supplies the instrumentalities, tools, the work location, and carries the license or certificate required to perform the work.
• Has the right to hire and terminate others.
• Is paid by the time worked, or by piece rate.
• Works under the direction of the employer or by a specialist without supervision.
• Whether the services are a part of the regular business of the employer.
• Whether the parties believe that they are creating the relationship of employer/employee or employer/independent contractor.

If there are questions, the Labor Code assumes a worker is an employee for workers’ compensation purposes. The burden of proof to support the independent contractor status of a worker falls on the employer. The Labor Code also requires that any subcontractor who does not have an active valid contractor’s license be treated as an employee, not an independent contractor. However, even though a worker may have a valid license, the worker may still be an employee depending on the factors as discussed above.

A good rule of thumb: as an employer, always protect yourself.

• If certain jobs require a license, request a copy for your records.
• Obtain original Certificates of Workers’ Compensation Insurance addressed to you from all contractors and subcontractors who have employees or who, in turn, subcontract any portion of their own work.

Remember, it’s all fun and games until someone gets hurt. If proper documentation is not maintained and presented to insurance auditors, carriers are obligated to charge premium for any liability that may exist under your workers’ compensation insurance policy.

–JK