Employers are sometimes reluctant to bear the expense of worker’s compensation insurance to cover their employees. They may even go so far as to avoid hiring people as employees, preferring instead to bring them on as contractors. Under most circumstances, this is illegal, but that doesn’t stop cost-cutting employers from trying it.
State Laws Require Worker’s Compensation Insurance
State laws vary considerably on the exact requirements, but every state in the union (and the District of Columbia) require employers to have worker’s compensation insurance, with very limited exceptions. Those exceptions are typically based on company size or industry.
The most employer-friendly states in this regard require employers with five or more employees to carry worker’s compensation insurance. Many states require it no matter the size of the company; even one part-time employee other than the owners make it a requirement.
Exceptions sometimes apply in industries like agriculture, but even then there is a low threshold for number of employees. So odds are that your employer is required to have this insurance to protect you from the costs of illness or injury due to your job. They may meet this requirement by self-insuring, but they must still have a company to administer this in a formal way.
Companies Cannot Avoid Liability by Paying Workers as Contractors
Some employers try to avoid the expense of worker’s compensation insurance (along with filing taxes and paying for health insurance and other benefits) by declaring that their workers are contractors. In many cases, this attempt to avoid these requirements is itself illegal.
A worker can only legitimately be a contractor if he or she either owns a company or is employed on a W-2 basis by another company. So, for example, a general contractor can hire an electrician who owns his own company, and this electrician can bring other workers onto the site that he has employed on a W-2 basis.
The IRS and the states have specific tests that typically disqualify employers from paying individuals using 1099 forms. Those tests include the employer’s ability to control the worker’s duties, the worker’s time, and the price that the worker accepts from one job to another. These tests are specifically designed to require employers to hire workers on a W-2 basis. This is so that taxes are paid and benefits like worker’s compensation are not avoided.
If you suspect that your employer does not carry worker’s compensation, ask to see their proof of coverage and discuss the situation with a work injury lawyer. The employer is required to post this information publicly.