Utilizing Independent Contractors? Here’s What You Need to Know About Workers’ Comp

Though independent contractors have allowed businesses to boost profits and efficiency, they’ve also left a burning question – what happens if they get hurt?

Published on October 23, 2018

Within the next decade, over half of the workforce will be made up of independent contractors. Many of these gig workers are working in warehouses and construction sites or driving for courier services. Though independent contractors have allowed businesses to boost profits and efficiency, they’ve also left a burning question on the minds of enterprises, staffing firms, and on-demand platforms alike – what happens when they get hurt?

Solving for the absence of workers’ compensation is a hot button topic with tangible risk, particularly in light of the many lawsuits continuing to underline the issue. Without workers’ compensation benefits that an employee would receive, workers are left with insurmountable medical costs which can lead to extensive litigation for the company. As an enterprise, it’s time to start thinking about the risks associated with independent contractor injuries, and putting solutions in place to make sure you and your independent workers are protected.

These solutions may be complex, and likely won’t look the same for every enterprise. But that’s a good thing. Enterprise/IC relationships can differ immensely from one another, and no one insurance policy could ever tailor effectively to the many types of jobs and contracts. While the insurance industry has historically been rigid and resistant to change, progressive insurers have begun to create flexible options that work with the variable needs of the contingent workforce.

Specific to workers’ compensation, there are many facets to consider—protecting workers against injury, helping workers who are injured on the job, and shielding enterprises that engage independent workers from injury-related litigation. It’s a germinal faction of the insurance industry, but it’s an exciting one. Here are five important questions to help you navigate this new terrain:


How does insurance impact independent professionals and worker classification?

Before asking about insurance, make sure your independent worker vetting, compliance, and contracting processes are in order. For example, each of your contracts—supplier, provider, and overall terms and conditions—should have clear insurance and indemnity provisions, reviewed by counsel. This is one of the first things insurance underwriters will review and indemnity provisions are arguably even more important than insurance, as proper classification is the first line of defense.


What is workers’ compensation insurance?

‘Work comp’ is statutory coverage historically designed for W-2 employees. While regulations vary from state to state, its structure is focused more on ‘return to work’ style benefits, consistent with employer/employee relationships. Although policies can be structured to include independent contractors, the coverage benefits on a standard form don’t lend themselves perfectly to most independent contractor arrangements. There’s also the potential to misclassify independent contractors and employees if policies aren’t properly understood and structured correctly.


Can an independent contractor purchase their own workers’ compensation policy?

Individual workers’ compensation policies for sole proprietors and independent contractors are available. These policies vary by state and type of service, but prices range from $350-$1,200 annually for most independent contractors. However, as a general rule, independent contractors without any employees of their own aren’t required secure workers’ compensation, and many will choose to work without the protection in place.

When independent contractors don’t have workers’ compensation and an injury occurs, they may retroactively sue the company for misclassifying them, and therefore neglecting to provide workers’ compensation insurance. Because the lines between independent contractor and employee can be so hazy, lawsuits of this nature often end up in the independent contractor’s favor.


What is Occupational Accident and Contingent Liability insurance?

The trucking industry solved the problem of independent contractor on-the-job injuries decades ago through Occupational Accident and Contingent Liability insurance. Occupational Accident insurance provides customizable benefits to the worker in the event of an injury. Contingent Liability insurance protects the enterprise against potential employee/independent contractor classification issues (in a way similar to workers’ compensation, but at much less cost). Some of the more progressive insurers have finally begun to put similar solutions together for independent contractors outside of the trucking industry.


What are the new future work solutions?

Unique, usage-based solutions utilizing customized workers’ compensation coverage and/or Occupational Accident and Contingent Liability insurance are becoming increasingly available. Nearly every month it becomes easier for contingent workers to be properly insured. Just as the staffing industry is evolving for the future of work, the insurance industry is as well.


If you’re interested in learning more about new and innovative options available to protect your company against independent contractor injury-related litigation and your independent workers against injury, reach out to Bunker (hello@buildbunker.com or 877-968-9108) for a free assessment and detailed update on IC Workers’ Compensation products.