Workers' comp insurance for 1099 employees

State laws don’t require employers to provide workers’ comp insurance for 1099 contractors. However, contractors may choose to buy this coverage themselves as it can pay for work-related medical bills that regular health insurance may not cover.

What’s the difference between an employee and a 1099 contractor?

Technically speaking, there really isn’t such a thing as a “1099 employee.” Someone who works for a company is either an employee or a 1099 contractor or subcontractor.

The Internal Revenue Service (IRS) defines an employee as someone a company hires and provides with regular wages, with the employer controlling how and when the work is performed, using the employer’s own tools and equipment. This includes both full-time and part-time employees.

Business owners with an employer-employee relationship must withhold payroll taxes for their employees and all Social Security, Medicare, and unemployment taxes deducted from an employee’s paycheck. Employees may receive other benefits such as health insurance and 401(k) or pension fund contributions.

Independent contractors, subcontractors, freelancers, and gig workers are all considered 1099 contractors according to the IRS. They may be contracted to work for a specific period of time or for the duration of a project, usually through a written contract.

Contractors typically operate with more independence than employees do, with a client dictating what needs to be done, but not how it’s done.

Do 1099 contractors need workers’ compensation coverage?

State laws don’t require employers to provide workers’ compensation insurance for 1099 contractors, although the contractors themselves may buy this coverage on their own.

Sole proprietors in riskier professions, such as the construction industry, may also be required to carry workers’ comp insurance. For example, in California, specific types of contractors are required by state law to carry this policy, even if they don’t employ anyone else.

Workers’ compensation laws also provide a bit of liability protection for small business owners. If an injured worker sues their employer over a workplace injury or illness, the claim and lawsuit would be covered by the employer’s workers’ comp policy.

Workers' compensation laws in your state

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When should 1099 contractors carry workers’ comp insurance?

Although 1099 contractors aren’t required by law to have workers’ compensation insurance, they may choose to buy a workers’ compensation policy and pay the insurance premiums on their own for the worker’s compensation benefits it provides.

Workers’ comp can cover a contractor’s medical bills for a job-related accident or illness. This is important because regular health insurance may not cover work-related medical costs.

Another benefit is workers’ comp can offset some of a contractor’s lost wages if they’re unable to work for a while because of a work-related injury.

Contractors might also need proof of workers’ comp insurance to qualify for contracts.

View video transcript.

As a business owner you might be asking: Do I need workers comp if I have health insurance? The answer is no, and yes, depending on if you operate solely or if you have employees.

While workers' compensation insurance and health insurance both provide protection from illness and injuries, that's where the similarities end.

Workers' comp can provide several benefits if you or your employees are injured on the job or suffer from a work-related illness. And it's required in most states if you have at least one employee.

Health insurance can help pay the medical expenses for non-work related injuries or illnesses if you have fewer than 50 employees, you're not required to offer health insurance. But, if you have 50 or more, you may be obligated to offer this coverage.

When it comes to workers' compensation premiums, you must pay 100 percent of the cost. And with health insurance, you typically contribute a portion of the monthly cost with your employee paying the rest.

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How can contractors save money on workers’ compensation coverage?

If you’re self-employed in a low-risk occupation but need a workers’ comp insurance policy to qualify for contracts, you might consider a workers’ comp ghost policy.

For a small premium, a ghost policy gives you the proof of insurance you need, without any of the actual coverage benefits.

If you desire actual workers’ compensation coverage with full benefits, you might consider paying your premium annually instead of monthly. Many insurers will offer a discount for those who pay annually.

For something in between, with a small amount of coverage, you might consider a minimum premium workers’ comp insurance policy. This is the smallest amount an insurance company will sell a policy for that has actual coverage benefits.

Find workers’ comp insurance quotes for independent contractors

Complete Insureon’s easy online application today to get insurance quotes from top-rated U.S. insurance carriers. You can also consult with an insurance agent to make sure you get the right insurance coverage. Once you choose a policy, you can begin coverage in less than 24 hours and get your certificate of insurance.