Workers’ Compensation Insurance and Independent Contractors

In the construction and mechanical industries, workers’ compensation insurance (workers’ comp) can be a severe expense.

workers compensation insuranceConsidering the current New York state crackdown (check out this CNN Money Article) on workers’ compensation insurance fraud, knowing whether the individuals on your job site are truly independent contractors or not can mean serious bucks to your business.

As a general contractor in NY, how do you know who is really considered an independent contractor?

Unfortunately, two answers that the NY workers’ compensation insurance board won’t accept include:

  • Because that’s what he/she told me they were
  • Because he/she doesn’t work for me

The following was taken directly from the New York State Workers’ Compensation website. These are the factors that a judge will take into consideration when hearing a workers’ compensation insurance dispute. In order to be considered an independent contractor, you must meet all of these requirements.

Identifying an Independent Contractor

In order for someone to be an independent contractor, he must meet all of the following criteria:

  1. Obtain 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.

If you are general contractor in New York and you have people working on your job-site that do not meet all these requirements and you are not paying workers’ compensation insurance premiums for them, don’t be surprised if you must pay a large additional premium at audit.

How can I protect my business from workers’ compensation insurance penalties?

You have three options:

  1. Pay the workers’ compensation insurance premiums spread out over the course of the year so your business doesn’t feel such a drastic hit from the audit bill. Call us at (518) 456-6688 to learn about pay-as-you-go workers compensation.
  2. Don’t have that individual worker on your job site.  Find someone that meets the requirements above.
  3. Have the individual purchase his own workers’ compensation insurance policy and have him provide you with a certificate and proof of payment.  This way you don’t have to pay workers’ compensation insurance premiums and he/she gets to continue working on your job.

If you have questions about workers’ compensation insurance or you would like to receive a proposal for workers’ compensation insurance, please call us at (518) 456-6688 or click here to email us.

Workers' Compensation Insurance and Independent Contractors by
Ryan Hanley

Ryan Hanley

Director of Marketing at The Murray Group
Ryan is the Director of Marketing for The Murray Group Insurance Services, Inc. Ryan is also the Founder of Content Warfare Podcast, one of the fastest growing podcasts on iTunes dedicated to digital marketing.
Ryan Hanley
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