I had a conversation yesterday with the owner of a painting company who found himself in a tough spot. He’s been running his business using all 1099 independent contractors.
But there was a problem.
He didn’t require these contractors to carry their own workers compensation insurance. Worse yet, he didn’t get declination waivers from them either. His insurance broker never educated him on these risks.
Now, one of his independent contractors got hurt on the job, went to the hospital, and is going to be out for 3-4 weeks. And, as expected, the injured contractor asked for his workers comp information to file a claim.
Here’s the kicker—while the claim will most likely be covered, the owner is still on the hook. He’ll pay for this independent contractor at his year-end audit. And in the painting industry, workers comp rates aren’t cheap.
He never saw this cost coming.
Lucky for him, at least he had some coverage in place. But think about it—what if he had skipped the policy altogether? Many contractors think they don’t need workers comp if it’s not required by a contract they’re bidding on.
That’s a mistake that could cost you your business.
This scenario is exactly why it’s so important to work with a broker who does more than just sell you a policy. You need someone who educates you on the risks, both short term and long term, so you’re financially protected. It’s not enough to “just get insured.” You’ve got to know what’s coming and plan for it.
If this owner had been better educated upfront, he wouldn’t be in this mess now.
So the lesson here: don’t skimp on education. Make sure you’re working with someone who’s thinking about your business’s future, not just the next sale.
Here are a few additional resources to check out:
Workers’ Compensation Insurance Basics: Link to a reliable source that explains the fundamentals of workers’ compensation, such as:
- https://www.sba.gov/business-guide/manage-your-business/pay-taxes#section-header-12 (U.S. Small Business Administration on Workers’ Compensation)
Independent Contractor Classification: Link to a guide on the classification of independent contractors versus employees, which is crucial to understanding liabilities:
- https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee (IRS guide on independent contractors)
Workers’ Compensation for Subcontractors: Link to a site that discusses specific cases involving subcontractors and workers’ comp, for further depth:
- https://www.insureon.com/blog/workers-compensation-for-subcontractors (Insureon’s guide on workers’ compensation for subcontractors)
Audit Process for Workers’ Compensation: Provide a link explaining the workers’ comp audit process, so readers understand the financial risks better:
- https://www.insureon.com/blog/how-do-workers-compensation-audits-work (Overview of workers’ comp audits by Insureon)
Contractor Insurance Best Practices: To educate readers on the best practices for contractors regarding insurance coverage:
- https://www.nextinsurance.com/small-business/workers-compensation-for-contractors/ (Next Insurance guide on workers comp for contractors)