How to deal with informal labor/help 1099, Workers Comp

Question

I like to have help when needed, but don't need regular employees.  The problem is I don't like the risk of going without workmen's comp insurance.  I've searched the forums and not really found an answer.

If I'd like to have someone on their terms and avoid making them an employee.  What is the best way to cover workmen's comp insurance?

Thanks!

John Mocker · Answer

Bruce,

Workers Compensation laws are state specific.  You need to speak with an experienced independent Agent that provides commercial insurance in CA.  I would look for referrals to an agent that works with contractors.

In many states, the Workers Compensation Board (or similar state organization) ultimately determines if an injured person was an employee at the time of injury.  Paying them on a 1099 does not guarantee that they will be considered an Independent Contractor.  There are "tests" that are used in that determination.  You should find out more about what CA uses.  Some that may be part of that are:

- who directs the work

- does the sub work for other companies or just yours

- are their operations (type of work) the same as yours (ie. a carpenter working for another carpenter)

- how were they paid.  If they were paid an Hourly, Daily, weekly wage or did they bid the job and get paid on completion

- did the sub supply their tools and equipment

- who supplied the materials

- do they have insurance for their work

These are some examples of tests that CA might use.

This is important because, if your sub does not have Workers Compensation and CA determines they were your employee, then you will be stuck with the Medical bills and lost wages.

Sean K. · Answer

Hi Bruce,

I'm an insurance agent in NJ.  I am not licensed in CA and not sure how their work comp rules work but in NJ if the contractor is a sole proprietor or a single member LLC they are NOT required to carry work comp.  So these are your smaller shops with one person and they do everything.  Once they have a W2 employee they are required to carry work comp.  Whether that happens or not in the real world and they just are paying someone cash is another story.  Of course that brings up the problem of if they do get hurt and they go to the hospital the hospital asks how they got hurt.  If it was work related they look for work comp.  If there is none it gets reported to state board and penalties ensue.

If you have work comp and you hire someone and they do not have it you should be covering that person.  As stated above before you hire someone ask them for a certificate of insurance.  This will at least give you an idea of what coverage they do have.

Talk to your insurance agent.  Assuming they are an independent agent and they sell commercial insurance they should know CA rules and deal with this all the time.

Michael Smythe · Answer

Ask every contractor to add you to their liability insurance and for a copy of their workman's comp insurance.

Noah Laker · Answer

Hey Bruce, I'm a broker and property manager here in Sacramento and on the property services side we use a lot of contract labor. They are required to carry this insurance.

I'm not sure if I understand the question here though. Are you asking if you need to carry insurance for your contractors? The answer is, as always, IT DEPENDS. You should always cover your own butt and also make sure you have a tight contract with them that limits your liability and requires them to make you an interested party on their insurance.

FYI this is just from my personal experience, I am not a lawyer not am I offering official advice.