Employers pay their workers on a 1099 form for a variety of reasons. One of the major reasons is to eliminate the need and cost of covering these workers under Workers Compensation. If you, as the employer, do not cover your 1099 workers for Workers Compensation, the question then arises –Who IS responsible?
Who Is Responsible?
You, or the 1099 Worker?
Unfortunately, there is not one correct answer, as individual states have different laws regarding 1099 workers.
The fact is that in MOST states, someone has to provide Workers Compensation for 1099 workers. That means if a 1099 worker does not carry their own Workers Compensation coverage, you, as the employer, will be required to provide it for them.
If, on the other hand, your 1099 worker does have their own Workers Compensation coverage, you do not have to provide it for that individual. You should, however, get a Certificate of Insurance from them and keep it on file for your audit or in the event of a claim. This will provide proof of their coverage.
So How Do I know FOR SURE?
To be certain, call your state’s Workers Compensation Bureau and ask them this question: “If I pay my employees on a 1099 form and they do not have their own Workers Compensation policy, do I have to provide Workers Compensation coverage to them?” Ask the person you are speaking to at the Bureau to respond to you via email. This way you will know for sure and have a documented response!
There are significant fines and penalties if you are supposed to cover 1099 or W-2 workers and fail to do so. Additionally, you could be liable for lost wages and medical expenses if they are injured on the job!
The IRS vs. Workers Comp Debate
According to the IRS, 1099 workers are not subject to payroll withholding, however, the requirements of the IRS have no affect on your state’s Workers Compensation requirements. Again, call your state Workers Compensation Bureau to find out specific requirements.
For your convenience, we have compiled a contact list of the Workers Compensation Bureaus for all 50 states. Please email me at HOlszewski@intermarketins.com for a copy.