Who am I responsible for covering under my workers compensation policy

A. You are responsible for protecting and providing workers compensation benefits to three types of individuals:

Direct employees: employees of uninsured sub-contractors; and “defacto employees”

  1. Direct employees. An “employee” is a person hired to perform certain services or tasks for particular wages or salary under the direct control of another. Employees are generally hired to perform a specific job usual and customary to the employers (hiring persons) business operation
  2. Employees of uninsured subcontractors Forty eight states and the District of Columbia Statutorily require that the general contractor provide workers compensation benefits to the employees of an uninsured subcontractor. General contractor/subcontractor relationships are not limited to the construction industry. A general contractor/subcontractor relationship is created when there are three parties involved 1) a principal/owner hires an 2) independednt contractor to complete the work; and the independent contractor hires a 3) subcontractor to perform some part of the work. When work is contracted to a third party, the “independent contractor” becomes a “general contractor”
  3. Defacto employees. Just because you call someone an ” independent contractor” does not necessarily make it so. Even if the individual is an “independent contractor”  according to the IRS, they may still be considered an ” employee in fact” under workers’ compensation guidelines. These are called “defacto employees.” Four major “tests” can be applied to decide whether a particular worker is an ” independent contractor” or an ” employee in fact” (defacto employee) under workers compensation.

Although not an exhaustive list, the four major tests are:

a. Do you ( the employer/ contracting party) control the workers’ way and means? Do you tell him/her what time to show up for work; when to got to lunch; when to go home? Further do you tell worker how to do the job? All of this indicates control, and control is a key feature of an employer/ employee relationship. True independent contractors show up when they desire and work according to acceptabel standards of quality. In essence, the contracting party has little control and provides limited direction.

b. Are tools and materials supplied by you? True independent contractors supply their own tools and generally supply the materials necessary to perform their duties (nails, glue, etc.) and at their own expense ( as part of the contract price.) If you (the contracting party) provide all this, you are asserting control and again look like an employer.

c. Does the ” independent contractor” work for anyone else? True independent contractors work for many principals and general contractors. If this is not the case, then this individual is a ” defacto employee” (employee in fact) regardless of what they are called or how they are paid.

d Does the “independent contractor” carry his own insurance? If not then it is very likely he/she is an “employee in fact”  under workers compensation laws

call if you have questions.




Special thanks to statefund first for the above content

About Daniel McKenna

Dan McKenna
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