1099 Employees and Workers Compensation Insurance

worker's compensation form

WorkersCompensationShop provides a overview of the importance of classifying workers properly for workers compensation purposes.

Misclassification for Worker’s Compensation Purposes

In regard to failure to carry Worker’s Compensation Insurance for a worker who has been misclassified; the SDWC in the state where the worker is employed; will similarly determine whether the employee was misclassified as an Independent Contractor. The government agency will make a decision based on similar factors relied on by the IRS. For instance in Vermont the Department of Worker’s Compensation and the Courts have adopted a two part test: The Right to Control and the Nature of Business Test. In contrast, Minnesota uses a nine factor test pursuant to Minn. Statutes, Section181.723 to determine whether an individual is a 1099 Independent Contractor in the construction industry, and a five factor test which focuses on the right to control for other types of individuals not in construction.

Each state has a unique statutory scheme and a set of factors used to determine if an employee is misclassified under the Worker’s Compensation Act in that state. Most states use some part of the factor’s from the common law 20 part IRS test.

In some states, like Wisconsin, field auditors from the Department of Worker’s compensation are authorized to conduct routine worksite compliance investigations and examine employer records without cause.

Many states have an Uninsured Employer’s Guaranty fund which will cover the worker’s injuries and claims for workers who are not covered under a workers’ comp insurance policy. In that event the employer will be assessed the full amount advanced by the fund. Additionally the injured employee now has the right to sue the employer for negligence when there is no workers comp coverage. In very rare cases where the Second Injury Fund is applicable, the fund may contribute where there is no current coverage.

Criminal Acts for Failure to Carry Workers’ Compensation Insurance

Failing to carry workers’ compensation for an employee is a crime in most all states throughout the United States. But the severity of the crime and the accompanying fines, penalties and jail sentence vary from state to state.

The state agency handling worker’s comp usually refers the matter to the district attorney for the county, or the US Department of Justice which handles cases where many workers at one company are misclassified.

In Pennsylvania, the crime is a third degree misdemeanor carrying a $2,500.00 fine and up to 1 year in jail, but if it is intentional, the crime it is a Third Degree Felony carrying a $15,000.00 fine and a jail sentence of up to seven years. Each day that you fail to carry insurance can be charged as a separate crime.

Other states have laws with far stricter penalties. So it is imperative to meet with an attorney licensed in your state if you are criminally charged.

Do 1099 Employees Need Workers’ Comp?

If you have any doubt whether or not a worker qualifies as a 1099 Independent contractor you can voluntarily provide workers’ compensation coverage as if that person were an employee. If you are a 1099 employee, you can buy a policy or ask the business paying you to provide coverage under their policy.

The company or the worker can file Form SS-8, Determination of a Workers Status for Purposes of the Federal Taxes and Income Tax Withholding with the IRS. All employee/employer taxes should be paid until your company receives a determination on the status.

A company who inadvertently misclassified its workers as 1099 Independent Contractors can enter the IRS Voluntary Reclassification Program. Employers will still be assessed for back wages, interest and penalties; however, the amounts owed for fines, penalties and interest can be drastically reduced. The IRS will allow business owners to enter into an installment plan, and

Read the full story at 1099 Employees and Workers Compensation Insurance

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