Is It Risky to Cover Independent Contractors With Workers’ Compensation Insurance?

Our lawyers are frequently asked by businesses about workers’ compensation coverage for independent contractors. Clients ask us: Can our company cover independent contractors with workers’ compensation insurance? Is it safer for us if we do so? Or better not to?

Like many issues involving independent contractor compliance, there is no one answer to these questions because workers’ comp is governed by state laws, which vary from state to state, and even under a single state’s law, the answer may depend on the nature of the services being provided by the independent contractor.

One part of a comprehensive compliance process such as IC Diagnostics provides businesses with approaches to enhance compliance with independent contractor laws and minimize misclassification liability relating to workers’ comp matters.

Risks to Construction Companies 

Workers comp benefits are traditionally limited to employees. Businesses are not generally required to provide workers’ comp coverage to independent contractors.

However, there is a considerable risk that, under a particular state’s workers’ comp law, a state agency or court may find that the workers involved are not independent contractors, but rather employees, and therefore, should have been covered. In that event, a company can be exposed to severe penalties for failure to provide such individuals with worker’s comp coverage. And penalties can be quite considerable.

For example, in New York, civil penalties for noncoverage can be as high as ‎$2,000 per violation for each 10-day period of noncompliance, up to two times the cost of compensation ‎for a company’s payroll for the period of such failure.

In Virginia, employers who fail to provide workers’ comp insurance for their employees are assessed a civil penalty for each violation of up to $250 per day for each day of noncompliance, up to a maximum penalty of $50,000, plus collection costs.

To read the rest of this article from JD Supra law firm click here.