Who are you responsible for covering under your Workers’ Compensation Insurance policy?
This is a question that often comes up when I’m working with small business owners that want a workers’ compensation insurance policy.
This answer has many moving parts and each one has it’s own rules. What’s important to know is that you’re the one that is responsible to the folks that you hire or those that are hired under you. This can be a bit confusing but hopefully you’ll gain some helpful information concerning your responsibilities as the business owner with payroll.
There are 4 types of persons that can potentially benefit from your workers’ compensation insurance policy. 1. Direct employees 2. Employees of Uninsured Subcontractors 3. Borrowed Help 4. Defacto Employees (Independent Contractor)
Direct employees are a person that you have hired to perform a certain task or job in exchange for money. They are under your direct control and work on your behalf at the specific location or business operation area.
Employees of Uninsured Subcontractors require workers’ compensation insurance coverage through statutory requirements. There are three parties in a subcontractor agreement; *a principal/owner hires an independent contractor to do the work and the *independent contractor hires a *subcontractor to perform some or all of the work. When the work is contracted to a third party, the independent contractor becomes a general contractor.
Borrowed Help are employees of another business but work for you for a task or specific job/location. They do this under your supervision or control. They come and go at your direction and are responsible to you.
There are also employees of a PEO (Professional Employer Organization). This is a relationship that contracts between the PEO and you. There are many rules associated with a PEO and it’s best to just let you know that if you’re a part of a PEO, you should still purchase a workers’ compensation policy for the things that people may do for you that aren’t included in the PEO agreement. To learn more about PEO’s click here.
Independent Contractors are the most common. This doesn’t only apply to to the construction field but applies to any area of business. The common thinking is that the “independent contractor” isn’t the responsibility of the hiring business owner. This is often misunderstood and can cause serious issues with the business owner’s workers’ compensation policy. There are a few things to seriously consider when addressing an Independent Contractor’s worker status;
Does the worker come and go, show up for work, go to lunch, take breaks and other direct controls by you or by other supervision responsible to you? If yes, this person is controlled by you. It all comes down to control.
A true independent contractor comes and goes as they see fit. This person can leave when they wish and they can stop work with they deem the work is done. In other words, you have little control over them and you provide them little or low amounts of direction.
Does this person have their own tools? Does this person have their own vehicles or does this person depend on you to provide them with all the necessary equipment and means to do the jobs you’ve given them? If you provide them with the majority of these things, then by all accounts they are acting in the capacity of an employee.
Who else does this person work for? Who is the only one they are receiving a paycheck from? Are you their main source of daily income? If this is the case, then again, it falls back to this individual working for you and therefore regardless what the name of their position is, they are employed by you.
As you can see, there are many types of people that can be covered under your workers’ compensation policy. But remember, each person that is covered under your work comp policy adds payroll to your premium cost.
These are simply highlights to your responsibilities as a business owner in North Carolina and should not be used solely in determining your insurance plan or protection. It’s very important to discuss this topic with your Workers’ Compensation insurance agent to prevent any problems should a work comp claim occur or during your annual work comp annual audit.