Does Workers Compensation Cover Independent Contractors?

Does workers compensation cover independent contractors? Not likely.[1] But as usual, the devil is in the details. In Minnesota, a great many workers that are characterized as "independent contractors" are in fact employees. For someone paid under a 1099 that has been injured on the job, another good question would be: “How do I know whether I am an independent contractor, or an employee covered by workers compensation?”

General Rule

An independent contractor is generally someone who is running a business that serves multiple customers with special expertise or skill that the customers don’t have, for a profit. An employee is generally someone who is being paid for his or her time to perform a task. The difference between an employee and an independent contractor boils down to two things:

• Control: If a worker is only being paid by one person or company, is being told what time to arrive at work, what tasks to do, and when, that sounds like an employee. On the other hand, if a worker has multiple paying customers and is being told what result is needed, but the worker is deciding when and how to achieve that result, that sounds like an independent contractor.

• Financial Risk: If a worker is being paid hourly, and does not have insurance, business assets, or recurring costs, that sounds like an employee. On the other hand, if a worker has a registered business, insurance, investment into the business, advertises, and is being paid per job, that sounds like an independent contractor.

It is important to note that whether the worker was paid by 1099 or W2 matters, but it is certainly not the only thing that matters.

Construction Industry

The issue of whether an injured worker is an employee or an independent contractor comes up most often in the construction industry. Many construction projects are carried out in a manner something like this: Company A bids a job, collects a fee from the customer, orders the materials, and then sends Person A a flat fee and a work order. Person A hires Person B and Person C, and pays them both a daily or hourly rate to help install the materials according to the work order. Company A considers Person A to be an independent subcontractor, and Company A has no idea who Person B or Person C is. Person A considers Person B and Person C to be independent subcontractors.

More details matter, but there is a fair chance that Person A is an employee, and an even higher chance that Person B and Person C are employees. If any of those workers are injured on that job site, they may be entitled to workers compensation benefits.

Here are the details that matter most:

·         Is the injured construction worker registered with the Department of Labor and Industry as an independent contractor?

·         Does the injured construction worker have a business registered with the Secretary of State?

·         Were the invoices and payments for the work on the job site made to the name of that business?

If the answer to all three of those questions is yes, then the injured construction worker might be an independent contractor. If the answer to any one of those questions is no, then the injured worker is likely an employee and is likely covered by workers compensation. In practice, workers situated similarly to Person B and Person C often are not registered with the Department of Labor and Industry and often are paid cash, so they are likely to be employees.

Other Industries

There are several industries other than construction that have industry-specific rules, including nurses, taxi drivers, babysitters, laborers, musicians, and several other categories. The full list of occupation-specific rules is available on the website of the Office of the Revisor of Statutes. Any occupation that does not have a specific would fall under the general rule discussed above.

Conclusion

It is not safe to assume that anyone paid by 1099 is an independent contractor. Anyone who has sustained a work-related injury and is not sure whether he or she is an independent contractor or an employee should seek legal advice. LawSmith PLLC will provide a free consultation upon request.

[1] Independent contractors can purchase workers compensation insurance and elect coverage for themselves, in which case they would be covered under their own policies. Otherwise, they would not be.