Do You Have An Employee Or An Independent Contractor?

Do You Have An Employee Or An Independent Contractor?

Let me preface this post by emphatically recommending you speak to an employment attorney before you classify anyone as an independent contractor. I will gladly provide you a contact if you need one. This post is meant to talk about insurance and not in any way recommending anyone be classified as an independent contractor.

The type of insurance you get as a business can depend on a number of different factors. One of these is whether you have employees or independent contractors. Depending on their status within your business, your insurance may or may not protect you from accidents that happen on your premises.

For instance, having Workers Compensation Insurance will help you should a member of staff have an accident, but an independent contractor may not be covered.

So what is the difference between an employee and an independent contractor? And why does this affect your insurance obligations?

Knowing The Relationship

There are four types of working relationships and these are:

  • An Employee– Otherwise known as a common-law employee. You control what they do and how they do it and where they do it.
  • An Independent Contractor– Someone who performs a service for you, but you have no direct control over. Think of your plumber for instance or your mechanic.
  • A Statutory Employee– Someone who is a contractor but is treated as an employee by statute for employment tax purposes. This may be common with temporary agencies.
  • A Statutory Nonemployee– There are three types of employee that fit into this category (direct sellers, licensed real estate agents and certain companion sitters).

By understanding the relationship you have with those working with you, you can start to see how taxes and insurance can be affected.

To help you determine the relationship between you and a member of your team, ask these three questions:

  1. (Behavioral) – Are you in control, or have the right to control, the tasks the worker completes and how tasks are completed?
  2. (Financial) – Are you in control of how the worker is paid? Do you reimburse expenses? Do you provide tools / supplies / a workstation?
  3. (Benefits) – Is there a written contract or are there employee benefits (i.e. insurance, vacation pay, pension plan)?

If you answer yes to all these questions then you most likely have an employee working for you.

Insurance Obligations

Dependent on your answers above, you now have to consider your insurance obligations. Employees are technically considered to be under your care while they are at their place of work. Therefore, any action that happens there, whether they are working at the time or not, is the employer’s (your) responsibility.

This is because you are in control of where they spend their time, the activities they complete for you and how they do it. There is limited choice for the employee so you take the responsibility for their safety. This requires Workers Compensation Insurance.This helps protect you should an employee have an accident at work, whether due to your safety negligence or because your staff member has not followed safety instructions. California is a no-fault state when it comes to Workers Compensation Insurance.

In more cases than not, Workers Compensation must be provided for Independent Contractors too. In order to avoid this in the construction industry, it is customary for general contractors to ask for proof of Workers Compensation Insurance from each and every subcontractor.

We can help you identify whether or not you need to have Workers Compensation Insurance and assist you in obtaining certificates and waivers of subrogation from vendors and subcontractors and independent contractors.


Knowing whether you have employees, or contractors, working for you is vitally important. Knowing what insurance you need, can protect you from not being covered should an accident happen on your premises and the victim makes a claim. If you aren’t covered, this could be rather expensive.

Do you have employees or contractors? Do you have the right insurance for your company?