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Which Employees are Covered by Workers’ Compensation?

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Posted On 11.29.18 by in Blog

As rideshare companies like Uber and Lyft gain in popularity, a growing number of people are asking “Do 1099 employees need workers’ comp?” The debate over whether rideshare drivers are employees or independent contractors has gone on for some time, resulting in a number of court cases. Like many new ideas and trends, the introduction of rideshare companies is shaking up the legal system.

1099 employees

The Basics of Workers’ Compensation

Every state except Texas has workers’ comp laws that require employers to maintain insurance coverage on their employees. Although it isn’t required, most Texas employers carry a workers’ compensation policy because of the benefits to employers and employees alike. Employers who choose not to purchase a workers’ comp policy can end up paying a great deal more when an employee gets injured on the job. Failing to have the required coverage also makes them vulnerable to lawsuits.

The laws regarding workers’ comp vary from state to state, but most are similar in how they work. For example, in Maryland, employers with one or more employees must purchase coverage. In Kansas, an insurance policy is mandatory for employers with employees with a gross payroll of more than $20,000.

Basically, employers purchase workers’ comp insurance either from an independent insurance agent or through their state. They pay premiums on the coverage just like you do when you purchase other types of insurance. When an employee gets injured on the job, they file a claim with their employer. The worker’s comp coverage pays their hospital and medical expenses to treat their injuries. It also pays disability payments while they are healing and unable to work. The amount of your workers’ comp payments is usually about 2/3 of your regular salary.

The main benefit of carrying workers’ comp is that it protects the employer from lawsuits. The employer usually can’t sue for compensation that they already receive. Like any law, there are exceptions to those related to workers’ comp. One of these is for independent contractors.

What Is an Independent Contractor?

An independent contractor is someone who works or provides services to another person or company but they aren’t their employees. The IC works under a contract or agreement that specifies the duties they will perform and the payment they will receive. The company doesn’t pay the IC a salary or provide additional benefits. The IC pays their own Medicare and Social Security taxes. The company that hired the IC reports the payments made using a 1099 Miscellaneous Income form. This form is what the independent contractor uses to file their taxes instead of a W2.

Common Examples of 1099 Employees

There are many examples of 1099 employees that work in a broad range of industries. For example…

  • Auctioneers
  • Consultants
  • Nurses
  • Personal trainers
  • Bookkeepers
  • Truck Drivers
  • Security Guards
  • Private Investigators
  • Photographers
  • Entertainers
  • Tattoo Artists
  • Tradesmen
  • Tutors
  • Massage Therapists

This is just a small sampling of the entire range of employees who typically work as independent contractors. Do 1099 employees need workers’ comp? Of course they do! These people face the same hazards that many other regular employees face every day. They work without a safety net, never knowing when an injury could interfere with their ability to earn a living. For the company that retains their services, the savings in workers’ comp insurance and taxes is a plus.

How Employers Take Advantage of the Independent Contractor Classification

Employers often use independent contractors within the business to save money. But the matter isn’t as black and white as you might think. It all comes down to whether the employer has fundamental control over the worker’s activities. If they do, they might meet the description of an employee. That includes setting their schedule or creating a project plan.

The savings in money has led some employers to misclassify full-time employees as independent contractors. These employees may work alongside regular employees, doing the same work with the same supplied equipment. It often falls on the employee to file a complaint when they believe their employer has misclassified them as an independent contractor. Sometimes the employee doesn’t realize what’s happened until they get an injury at work and try to file for workers’ compensation. Once they discover the deception, the employer can end up paying severe penalties. Even if you receive a 1099 instead of a W2, you may be covered by workers’ comp law. Check with a workers’ comp attorney to learn your rights.

Ubs

How Uber Is Changing the Way We Look at 1099 Employees and Workers’ Comp

Skeptics wonder, do 1099 employees need workers’ comp if they have health insurance? They might think that every injury is covered by their insurance and that no other benefits are needed. Even with health insurance, they could have high medical bills they can’t afford to pay. One expense is the deductible that they must pay before the insurance kicks in. There are also copay charges for the various services they need. Health insurance companies also impose limits on how much they will pay for certain treatments or diagnostics. Some services aren’t covered at all. Relying on your health insurance to treat your injuries could leave you without the best treatment options, a mountain of debt, or both.

Another issue that people don’t always mention is the loss of health insurance once the employee isn’t able to work. If the injury is severe enough to cause extended time off or it results in disability, they can no longer earn a living wage. If their insurance is offered through their workplace, they won’t have the money to pay their premiums. If it’s private insurance, the cost will be even higher. Many people lose their health insurance at the same time they lose their ability to work.

Why do 1099 employees need workers’ comp? Imagine what happens when an Uber driver is seriously injured in an accident. There’s no one there to pick up the bill for treatment or provide them with another source of income.

The controversy over whether Uber drivers are independent contractors or Uber employees often leads into this question. These drivers use their personal vehicles to pick up passengers and transport them to various locations. The odds of being in an accident and getting injured is much higher for them than for the average driver.

Uber requires drivers to be 21 years of age. Those over the age of 23 must have had a valid driver’s license for a minimum of one year. Drivers under the age of 23 must have had a valid driver’s license for a minimum of three years.

In addition, the company requires the driver to have access to a 4-door vehicle that is no more than 10 years old (15 years in some cities). They must have an auto insurance policy in their name for that state and an in-state driver’s license, license plate, and registration. Drivers must have a social security number and pass a background check.

Once approved as an Uber driver, they use the company’s app to let riders know when they’re available. This is also how they receive ride requests. When the driver isn’t working, they turn the app off. The company provides supplemental insurance coverage while the app is on. When it’s off, the driver’s personal insurance kicks in. The company’s coverage is to protect passengers in case of an accident. Any injuries incurred by the driver are never covered.

The use of their own vehicles and the ability to make their own schedule are behind the company’s argument that the drivers aren’t employees. The fact that rideshare companies are something new means that the existing laws weren’t designed with them in mind. While this specific issue only applies in large cities, it is a good example of how the law sometimes needs a new interpretation to cover different scenarios. A number of drivers have challenged this classification of drivers in court. One, in particular, is having a widespread impact.

California’s Supreme Court Delivers a Challenge to Employers

During May of 2018, the California Supreme Court issued a ruling that makes it more difficult to treat employees as independent contractors. The specific case involved a courier service, Dynamex, which converted its drivers to independent drivers some fourteen years earlier. Some of the employees sued Dynamex, claiming that they worked solely for Dynamex. They also claimed that the company had control over their assignments, uniforms, pay rates, and other aspects of their jobs.

When the employees won their case, Dynamex wasn’t finished. They appealed the case and it went to the Supreme Court. They upheld the previous ruling in favor of the employees. They also adopted a standard similar to one already used in other states called the ABC Test.

The ABC Test has three requirements an employer must meet to classify a worker as an independent contractor.

  1. The contractor must provide the service without control of the company
  2. The service provided must be outside the company’s core business
  3. The contractor is an independent professional who provides services to other companies as well

Under the ABC Test, Uber drivers would not qualify, since they don’t work for other rideshare companies. They aren’t professional drivers offering their services to other companies. An employee in an office setting who works alongside other employees and does the same work with the same equipment wouldn’t qualify as an independent contractor either.

Why Employers Should Consider If Employees Need Workers’ Comp

Some employers never take the time to consider “Do employees need workers’ comp?” They focus on the bottom line and getting the help they need at the lowest possible cost. Some of them may think they are working within the legal description of independent contract work. But finding out too late that they were wrong can hurt them and their business.

Workers’ compensation laws vary from state to state. One of those variations is how an independent contractor differs from a regular employee. The new definition of an independent contractor in California is described above. In Maryland, the Workplace Fraud Act (WFA) addresses the issue of misclassification in the construction and landscaping industries. Construction accidents are often quite serious and result in long-term injuries and disabilities. Even full-time employees often have injuries and medical bills that far exceed their workers’ comp benefits. Workers hired as independent contractors don’t have that to fall back on.

Why

Why It Matters to You

Everyone doesn’t live in an urban area where Uber and Lyft are a normal means of transportation. Every case involving Uber or Lyft and the dispute over classification hasn’t been a win for the drivers. But every time the courts rule in favor of the rideshare company, another company gets the idea that misclassifying employees is okay.

It isn’t just the loss of workers’ comp benefits you have to worry about. It’s payments into social security, preparing for your retirement, getting health insurance, and other benefits normally enjoyed by full-time employees.

The laws are changing quickly in some areas; a lot more slowly in others. Many workers don’t even know the workers’ comp laws in their state. They have no idea whether they qualify for benefits until they get hurt on the job.

Protect Yourself in Case of a Work-Related Injury

If an employer asks you to sign anything stating that you aren’t a full-time employee, don’t. Have an attorney look it over instead. Even if you already signed a document stating that you aren’t a full-time employee of the company, you might still have rights. Saying it isn’t enough to make it true.

If you normally do freelance work but have devoted your services to a single company, you might not meet the definition of an independent contractor in your state. If you do, but your injury resulted from a company’s negligence, you may have other options to get compensation. Talk with a workers comp attorney about your rights.

If you get injured on a job, find out what options are available to you. Contact us today.  We’re here to help.

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