Employees Vs. Independent Contractors: Who’s Covered Under a Workers’ Compensation Policy?

Posted on: April 3, 2017 by Care Providers Insurance

Employers should understand the difference between employees and independent contractors when deciding whether or not to invest in a workers’ compensation insurance policy. Without understanding this distinction, your clients may decline to purchase a workers’ compensation policy, leaving them under-insured and vulnerable to lawsuits. Below are answers to frequently asked questions regarding employees and independent contractors in relation to workers’ compensation insurance in Texas.

What is the difference between an employee and independent contractor under Texas law?

Under Texas law, any person who performs, works, or provides a service for an organization is an employee unless they are operating as an independent contractor. An independent contractor freely contracts their services to another party. They work under his or her name, use their own equipment, and work independently of the organization.

Does my client need workers’ compensation insurance if their independent contractors are given 1099 forms?

Some organizations believe that a 1099 form allows them to avoid having to purchase workers’ compensation coverage for independent contractors, therefore saving them money on insurance and tax fees. As a result, they do not classify independent contractors as employees and refrain from purchasing a workers’ compensation insurance policy.

In order for an employee to file a workers’ compensation claim, they must first prove that the injury was work-related and that they are in fact an employee. If an independent can prove that he or she meets the classification of an employee under Texas law, the independent contractor can sue the organization for work-related injuries.

Therefore, it is recommended that an organization strongly considers purchasing a workers’ compensation policy if they hire independent contractors.

Is a general liability policy enough to protect against claims?

While most standard general liability policies will protect your clients from lawsuits for injuries to independent contractors, only a workers’ compensation policy will provide your clients with protection for injuries to employees. Thus, your clients who incorrectly classify individuals working for them as independent contractors will not be protected if one of those individuals sues following an on-the-job injury.

What are my clients’ responsibilities?

It is recommended that an employer fully understands the difference between independent contractors and employees. Furthermore, if an independent contractor can be classified as an employee under law, it is your client’s responsibility to purchase workers’ compensation coverage.

Regardless of whether an employer elects to carry this insurance or not, it is important to note that they are still responsible for creating a safe workplace and providing benefits to their employees after a work-related injury. However, workers’ compensation insurance acts as a defense in case of a lawsuit, and indemnification in case of a work-related injury. When an employer declines a workers’ compensation policy, they relinquish any protection they’d receive otherwise.

For more information, please contact Kaycie Berley at kjberley@nsminc.com or 972-427-4205.

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