Many hiring firms require workers classified as ICs to obtain workers’ compensation coverage for themselves. Such coverage is available in most states, even if an IC is running a one-person business.
If you don’t do this, your own workers’ compensation insurer might require you to cover the IC and pay additional premiums. Insurance companies do this because there is a risk that an injured IC might later claim to be an employee just to get workers’ compensation benefits. Your workers’ compensation insurer will audit your payroll and other employment records at least once a year to make sure you’re paying the proper premiums.
If you require an IC to be insured, obtain a certificate of insurance from the worker. A certificate of insurance is issued by the workers’ compensation insurer and is written proof that the IC has a workers’ compensation policy. Keep it in your files and make it available to your workers’ compensation insurer when you’re audited.
Resources For detailed guidance on workers’ compensation insurance audits, see Comp Control: The Secrets of Reducing Workers’ Compensation Costs, by Edward J. Priz (Oasis Press), and Slash Your Workers’ Comp Costs: How to Cut Premiums Up to 35%—And Maintain a Productive and Safe Workplace, by Thomas Lundberg (Amacom).
Even if an IC has his or her own workers’ compensation insurance, you’ll still need to have liability insurance because the IC can sue you in court if he or she is injured due to your negligence. As we explained above, the workers’ compensation provisions barring lawsuits by injured employees won’t apply to you because you are not the IC’s employer. Injured ICs or their workers’ compensation insurers may file these lawsuits.