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This is an article that was just published in our Independent Insurance Agents Newsletter. It is a question that we get frequently about who is an employee and who needs Worker’s Compensation. I thought it was very succinct in the answer. If you have any questions regarding this, please contact us via our “Contact” link.

IIABA’s Virtual University VUpoint Newsletter
Vol. 18, No. 14 – Issue #425 – Friday, July 7, 2017
Copyright © 2017 by the Independent Insurance Agents & Brokers of America, Inc.

Work Comp, the 1099, and the W-2

Q. I have a workers’ compensation insured with full time employees (paid on a W-2 basis through payroll) and a long list of part-time workers paid on a 1099 basis (working on average 7 weeks per year). The carrier has always charged for the 1099 workers on the audit and I have always considered them to be covered. However, an attorney has told the insured that unless they are on a W-2 basis they do not have coverage per a state statute (which no reference was provided). Could the attorney be correct in any way?

A.. . . In work comp situations, it doesn’t matter how a person is paid, W-2, 1099, cash under the table, or in guacamole. What matters in workers’ compensation is the worker’s status as an employee at the time of the injury. There are four types of “employees”: direct, de facto, de jure, and special (borrowed servant).

A direct employee is the one on the payroll. De facto employees are employees based on the facts of the situation (how much control does the employer have over the actions of the worker). De jure employees are employees because the law says they are (i.e. the employees of an uninsured subcontractor may be considered employees by law); and special employees, often called borrowed servants, are employees because of the amount control over them the entity for who they are working at the time has over them.

So, the question isn’t, how are they paid; the question is, do the part timers qualify as employees (based on the types of employees)? There may be a statute related to that question, it is possible the workers could be considered “independent contractors” by statute – but that requires a legal determination. Some state statutes define what constitutes an “independent contractor.”

Regardless how a person is paid, the question is – are they considered an “employee” at the time of the injury.