Workers Compensation Insurance and Independent Contractors

Recently I did some work for a local small contracting company. Like many small contractors, they rely on 1099 or independent contractors as a mainstay for their labor requirements. This new client was surprised when he received a letter in the mail from the Virginia Workers Compensation Commission informing him, that pursuant to section 65.2-902 of the Virginia code, he was subject to a fine of up to $5,000 if he failed to comply with law, and secure a Workers Compensation policy.

Now, scary language aside, what to do? More often than not employers enter into 1099 arrangements to avoid engagements, like work comp, so it would follow that this regulation seems onerous. But let’s not be too hasty with that judgment, perhaps there is more to this?

What does a Workers Compensation policy afford a business owner? Like all insurance policies, it transfers risk. But, Ian – these are independent contractors, don’t they work at their own risk? Of course that’s the nub of the question, right; and the answer is sometimes. Yes, they are working at their own risk when they could be doing work for you, or someone else, at any given time and place, for example a software developer, to whom you give a task, and ask only that they return your order by a date certain. If however, your 1099 is told by you to report to a specific place, at a given time, and work only on your task, than you do have a workers compensation exposure, that contractor isn’t truly independent, at least not at that time, and should they get hurt, your business could find itself paying bills it never budgeted for. In this instance a Workers Compensation Policy is very useful.

Of course all of that is only the dry and rather boring insurance detention stuff. This whole aspect of 1099’s becomes far more complex when one actually goes to the market in an effort to secure a policy. Workers Compensation carriers as a matter of course ask for threes prior loss runs, as part of their application, fail to provide them, and most likely you’ll be declined. Rather a frustrating thing for many contractors, since they don’t have an existing workers compensation policy, with three years prior loss runs, they are brand new to the market. This often comes to ahead when a smaller contractor earns an opportunity to work for a larger contractor as a sub. The larger contractor will ask their new sub for a certificate of insurance, the sub, lacking a working compensation policy, is left scrambling.

This issue tends to set off a time consuming and aggravating experience of calling insurance agents and 800’s numbers in search of a work comp policy for their company. The business owners seeking a worker’s Compensation policy find themselves at a crossroads in the insurance industry, caught between their need to buy an insurance policy they need in order to manage their business, and insurance sales people who tend to shy away from difficult challenges without clearly defined commissions. Business owners will hear a range of response, but the bottom line tends to be, sorry but I can’t help you.

Sturdevant Agency is much different; helping to resolve these challenges affords us an excellent opportunity to better understand our clients, their needs, and their business.  Yes, these are more difficult cases, it is a challenge to find a carrier willing to work with a new enterprise, but we’re willing to do the work to earn our clients trust, respect and business. Workers Compensation doesn’t pay huge commissions, but frankly, commission growth is an endpoint of client satisfaction, and its client satisfaction not commission growth that is our primary motivation.

If you are seeking a Workers Compensation policy for your business, please give us shout, we’re always happy to meet new clients, and help new friends.

Sturdevant Agency

(703) 822 7505

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