Manage Your Workers Compensation Independent Contractor Exposure
One of the biggest challenges that a contractor faces on a job site is managing its independent contractor exposure. Understanding the legal difference between what constitutes an "employee" versus an "independent contractor" enables the contractor to avoid becoming the legal employer of a contractor's or a subcontractor's workers. The most effective way to mitigate the exposure is to require the contractor to carry workers compensation insurance and take reasonable steps to verify that such coverage is in place. Other steps for reducing this exposure include:
- Check the state statutes for independent contractor qualifications. Seek legal advice for clarification as needed.
- If the state requires independent contractors to register, check the state's online portal to verify the contractor in question is registered.
- Execute a written contract with the independent contractor outlining the relationship. Avoid placing restrictions on the contractor's freedom to perform work for others.
- Require the contractor to provide its own tools and equipment.
- Pay the contractor based on completion goals rather than on a weekly or biweekly basis to avoid the appearance that the independent contractor is drawing a paycheck. Require an invoice for payment.
These suggestions were offered by Sonja Guenther, Senior Vice President, Willis of Colorado, at the "Controlling Workers Comp Costs in Modern Times" workshop during the 32nd IRMI Construction Risk Conference in Orlando.