Do i need workers comp insurance for independent contractor

California law requires companies to provide workers’ compensation benefits to W2 employees. Independent contractors, on the other hand, are generally not covered under workers’ compensation. That said, the reality is that many employees are improperly classified as independent contractors.

To find out whether you are an independent contractor or employee you should understand:

• Why independent contractors do not receive benefits
• The difference between an independent contractor and an employee
• The control test for determining the difference
• How to pursue a claim if your employee status is disputed

This article will explain:

Independent contractors do not get workers’ comp benefits.

1. Are independent contractors entitled to workers’ compensation benefits?

No. Independent contractors do not receive workers’ compensation benefits. The workers’ compensation system only applies to employees.1

The difference is important if you are injured doing work for an employer. The insurance company may deny your claim because you are not an employee.

If you are an independent contractor, many of the laws do not apply. Whereas if you are classified as an employee, your employer has to:

• pay for workers’ compensation insurance for you
• pay part of your Social Security and Medicare taxes (which may be put in a Medicare set-aside)
• comply with labor and discrimination laws for employees.

Independent contractor status may be used as a “subterfuge” to avoid employee status, meaning that an employer may falsely claim that you are an independent contractor in order to avoid paying you workers’ compensation benefits. The idea that an employer may try to classify a worker as an independent contractor as opposed to an employee is common enough to be mentioned in the California Labor Code.2

If a court determines that you were really an employee, and misclassified as an independent contractor, you may be entitled not only to workers comp benefits but also to file a wage and hour lawsuit in California for unpaid wages, overtime and failure to give meal and rest breaks.

1.1 Difference between employee and independent contractor

A California employee is any person in the service of an employer, whether with an oral or written contract, whether lawful or unlawful.3

A California independent contractor is a person who works for a specific fee and result. The employer only controls the result of the work but not how the work is accomplished.4

There are times when the risk of injury should be placed on the person doing the work, and other times the risk should be on the person hiring.5

When a worker does not have control over the work that they are doing, they do not have control over the safety of the work. In this case, they are an employee.

Independent contractors:

• choose the burdens and benefits of self-employment
• have control over their own work safety
• are in the best position to determine the cost of safety versus profit6

If you have not actually chosen these items, then there is a question of whether you are actually an independent contractor. For a more detailed discussion, see our article on W2 vs 1099 in California.

2. How do you determine if you are an independent contractor or employee?

The determination as to whether someone is an employee or an independent contractor is one of fact.7 The Labor Code view favors the idea that you are an employee.8

The Labor Code states:

“Any person, rendering services to another, other than as an independent contractor… is presumed to be an employee.”9 The burden of proof is on the employer to prove that someone claiming to be an employee is an independent contractor.10

Just because someone is called an independent contractor in their business relationship does not mean that they are one.11

The test for independent contractor status is one of how much control the employer has over the employee and how they get their work done.12 There are many additional factors that can be considered to make this determination:

• Whether the person performing services is engaged in an occupation or business distinct from that of the employer;
• Whether or not the work is a part of the regular business of the employer;
• Whether the employer or the worker supplies the tools and the place for the person doing the work;
• The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
• Whether the service rendered requires a special skill;
• If the job type is usually done by independent contractors or employees
• The alleged employee’s opportunity for profit or loss depending on his or her managerial skills;
• The length of time for which the services are to be performed;
• The degree of permanence of the working relationship;
• The method of payment, whether by time or by the job; and
• Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.1314

Rider-share drivers are typically independent contractors.

There is no specific way to apply all these factors. The weight of the different factors depends on the situation.15 It is not simply counting how many factors are on one side or the other.

Example: A package delivery company says their drivers are independent contractors, but they would actually be considered employees because they:

• work full time
• are paid weekly
• have regular schedules and routes
• receive standard employee benefits
• wear uniforms
• use company equipment
• can not work for someone else16

Example: James is a high school student who sells and delivers newspapers. He is considered to be an employee of the newspaper even though he signed a contract stating that he was an independent contractor. The contract was only done as a way for the employer to avoid its obligations under workers’ compensation laws.17

Example: Veronica is a housekeeper. She works with a property management company that supervises apartment complexes. She cleans the apartments when someone moves out. The insurance company claims she is an independent contractor.

She is found to be an employee of the property management company. She never worked with another company, and she did not have business cards, and she did not set her own rates. Though her invoices were stamped with her name and she had a business license, she was told to do these things by the property management company. Veronica believed that she was an employee.

It did not matter that there was an independent contractor agreement. This agreement did not mean anything by itself. The property management company had to prove that Veronica was not an employee, and they did not do it.

Example: A gardener does yard work for a restaurant and is considered an independent contractor, not an employee of the restaurant because:

• He did the same type of work for many different clients
• He had his own truck
• He purchased and used his own tools
• No one from the restaurant told him how to do his job18

Example: Edward works for AAA Security Co. installing security alarms. There is no dispute that he is an employee. He works an eight-hour day, is paid hourly, and gets vacation and medical benefits. He uses a company truck.

Edward moves to an area where AAA no longer operates, but he still wants to work for them. Edward and AAA agree that he would service the AAA security systems in this area. Edward forms his own company to do this. He hires his own employees. He uses his own vehicle. He gets his own liability insurance.

Edward is an independent contractor because he has control over his work. He can do it himself or hire someone else and supervise, he could work for other companies, and he presents himself as being an independent business person.19

3. What to do if the insurer denies your claim?

When you file a claim for California workers’ compensation benefits, the insurance company may deny your claim based on the defense that you are an independent contractor.

Filing an Application for Adjudication of Claim and Declaration of Readiness To Proceed will put your case before a judge to decide if the insurance company is correct.

Remember that it is the insurance company’s responsibility to show that you are not an employee. The default is that you are an employee.

If the insurance company does not prove that you are an independent contractor, then you qualify for benefits including medical treatment, mileage reimbursement, temporary disability benefits, permanent disability benefits, death benefits in the case of fatalities at work, and supplemental job displacement benefits.

You may appeal any denial of benefits in a California workers compensation case.

4. How do I obtain benefits if my employer says I am an independent contractor?

It is important to understand how to file a workers’ compensation claim for occupational illnesses in California.

If the insurance company denies your claim by stating that you are an independent contractor, it is up to you to take action to show that you are an employee and entitled to California workers’ compensation benefits.

Call our law firm for legal advice. We offer free consultations.

For help with filing a workers compensation claim in California or completing workers comp forms, contact us. Our firm helps police officers, firefighters and other workers to get compensation for their job-related injuries. (For cases in Nevada, please see our article on independent contracts and workers’ compensation benefits in Nevada.)

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