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Are you REALLY an Independent Contractor?

Times are a'changin! You might think that you are an independent contractor, or that you EMPLOY independent contractors... and you are probably wrong. This article will focus on how the term applies to Workers Compensation Insurance. An employer might be surprised at some point when asked to declare the salaries paid to Independent Contractors on an insurance application. Here is a quick list of things for employers to consider when you tell your insurance agent about your payroll:

An Employer/Employee Relationship

  • Employer controls the details or manner of your work

  • Employer has the right to terminate you

  • Employer pays you an hourly wage or salary (even if they also pay you commission)

  • Employer makes deductions for unemployment or social security

  • Employer supplies materials or tools (real estate signs, phones, desk, computer, advertising materials)

  • Employer requires you to work specific days or hours

First thing: it is important to know that there IS NO SET DEFINITION for the term "Independent Contractor" that can be used for all purposes.

Accountants and CPA's use the term for the purpose of doing taxes & deciding who is responsible for paying their own taxes and who needs theirs withheld. Being paid on a 1099 DOES NOT MEAN one is certainly not an employee.

An insurance agent will use the term for the purpose of deciding how much payroll an employer needs to report on their Workers Compensation Application, which then determines the amount of premium the employer pays.

The EDD office might turn a claimant down for unemployment saying they were not an employee, HOWEVER, get injured on this same job and a judge & lawyer will award injury benefits and use the term entirely differently than anybody and suddenly the claimant IS an employee for that purpose!

Why is it different for terms of liability and/or injury than for taxes/IRS? Well, more often lately, clever lawyers have been able to demonstrate to a jury that while the employee engaged in the activity that led to the injury, the employer was planning to gain, or be "enriched" in some way from it (i.e. the employee making a new sale where profits are split). If an employer didn't stand to gain from the employees job duties, what would be the incentive to hire for the job in the first place? Since the employer also gains from the duties that put the employee at risk, the employer has to take responsibility for the employees safety & carry the proper insurance, even though the pay structure is 1099 or commission based. How payment is made to the employee has little to do with who is responsible for injury on the job.

Let's use an example: Realtor is out putting up a sign on a house he listed for sale. A dog comes out and bites him, then, as he runs away from the dog, he steps in a hole and twists his ankle. Many Realtors & the Brokers that hire them think the Real Estate agent is an Independent Contractor who can't file a Workers Compensation Claim. Not so! The Broker whom the Real Estate agent works for will likely be held accountable for this injury and have to pay expenses because the Broker planned to benefit from having the sign in the yard because he or she gets a share of the commission on the sale (and probably required the agent to put it up in the first place). Almost always, Brokers are surprised when they find out they have to pay Workers Compensation premiums on their agents commissions.

All put simply: If the person who writes your check is ENRICHED by your labor you are probably an employee for at least intent & purpose of liability. As far as workers compensation is concerned, everyone is an "employee". The tax status does not matter as far as insurance goes & it doesnt matter whether the EDD allowed you to collect unemployment or not. It does not matter if you signed a contract saying you were an Independent Contractor. If shenanigans happen, and you find yourselves in legal hotseats, you will find out whether you were an employee and for what purposes.

Another helpful general rule: TRUE Independent Contractors are set up as their own legal entities. If you haven't set yourself up as an entity, then you haven't truly taken responsibility for employing yourself.

Commonly mistaken as Independent Contractors are:


Loan Officers


Delivery & Taxi Drivers

Home Care Nurses


Adult Entertainment Workers

There is MUCH more in depth research you can do, this article was only intended to scratch the surface and give you a quick set in the right direction to use as a basis for the rest of your research as it pertains to how you intend to use the term Indepent Contractor.

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