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Most people understand that a traditional workers’ compensation insurance policy covers your employees on payroll. But it also extends to “Statutory Employees” performing labor for you. So, let's start with the definition: “A statutory employee is an individual who is specifically defined as an employee by statute.” Examples of Statutory Employees: Casual labor Contract Labor / Independent Contractors Uninsured Subcontractors Volunteers For now, let’s focus on casual and contract labor and the additional risk they pose to your traditional policy. We want you to be aware of the risks, before you enter into a working relationship. Note: We’ll cover the other types of labor in separate articles. Casual Labor is made up of individual's that are temporary, by definition. They are generally, but not always, working outside your usual course of trade. Further, as defined by the IRS, they are limited to $600 in compensation. For example, you may hire an individual: for a special project, or for a high season, or as employee and they are terminated or left after working only a few days. Remember to always pay them by check. It is a big red flag for insurance carriers when they see employers paying workers in cash. Further, always talk to them on safety precautions before they begin employment to help prevent an accident. Even if they only worked for you for a matter of hours, a workers’ compensation claim could wind up paying their wages for months or years, should an on-the-job injury occur. Contract Labor is made up of individuals that you have chosen to pay on a 1099 instead of paying them on a W2 as an employee. Note: Workers’ Compensation does not set the guidelines for whether someone is legally able to be paid on a 1099. That is between the employer and the State of Florida and/or the IRS. For more information about this aspect of Contract Labor, go to the following websites: From the Florida Department of Revenue: https://floridarevenue.com/taxes/taxesfees/Pages/rt_employee.aspx From the Internal Revenue Service: https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation For workers’ compensation, there are issues that get presented when you pay someone on a 1099. If they are injured, they are not technically your employee, and thus, you have less control about Return-to-Work. This can dramatically increase the cost of any claims that occur. Regardless of how you pay a person, if they are performing labor for your firm, you can be held liable for any injury that occurs while on the job. Remember, your loss ratio gets impacted when the carrier pays claims. Those reserves and payments go into your experience rating calculation and can increase your future premium for the next 3 years. Even more important, it can directly impact your ability to obtain coverage in the future. There are lots of reasons that go into how you choose to pay the individuals/firms that do work for you. By understanding the impact that they can have on your worker’s compensation insurance, you cand develop a plan to deal with them properly.

While the actual “coverages” provided by all workers’ compensation policies are the same, “Who is Covered” under the polices is not. Let’s go over the 2 types of policies and point out the differences. Policies purchased Directly from an Insurance Company: Coverage with a policy purchased directly from an insurance company, (through a licensed agent), provides coverage to all your employees, along with coverage for all Casual and Contract Labor as well as Uninsured Subcontractors (Statutory Employees). Policies purchased through a PEO: The “Who is Covered” on the PEO policy only covers “the Employees Reported To, Approved By and Named on the Policy”. So, to be clear, any firm that gets their coverage through a PEO/leasing company leaves the firm with NO COVERAGE for: Casual labor Contract Labor Uninsured Subcontractors and ANY EMPLOYEES OR OWNERS not yet reported to and approved by the PEO. Your company, not the PEO provided workers’ compensation policy, would be responsible for these claims if anyone is injured while working for you. This information is important because it applies to your firm not only if you are insured with a PEO, but also if you choose to accept/allow a subcontractor to work for you that has coverage with a PEO. Your policy can and normally will become responsible for any workers’ injuries for any subcontractors' employees that are not covered under their PEO policy for the reasons stated above. Due to the seriousness of this subject, we will be dealing with this in a follow-up article giving examples of some of the dangers relating to this subject.