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In our current Government period of more is popular, there are recent developments which business owners should be aware of, especially those utilizing Independent (Sub) Contractors (1099’s in IRS terms). . They include recent increased enforcement of the definition of  a W2 Employee versus an Independent Contractor , Professional Liability insurance for Independent (Sub) Contractors and Workers Compensation considerations of Independent (Sub) Contractors.

In an effort to increase Wage Theft enforcement, both Federal and State Regulatory authorities are choosing certain Standard Industry Classifications and applying not only strict literal interpretation of the definition of Employee versus Independent Contractor, but also looking outside the single customer relationship. Simply having a legally binding executed Independent Sub Contractor Agreement between two parties, along with following all standard traditional determinants in the definition of employee versus Independent Contractor, may not be sufficient to Federal and State regulatory authorities. If an Independent (Sub) Contractor is not in the regular business of providing similar services to other customers, then they may be deemed as an employee versus an Independent Contractor of you or your business with all the tax, penalty, fee and insurance ramifications that go along with that determination.

Meeting all the definitional requirements of an Independent Sub Contractor may relax tax and accounting requirements to a Sub Contractor for the business receiving Sub Contractor’s services, but there still remains the uncertainty of protection from Loss or injury caused by the Sub Contractor in an era of “Deep Pockets”. Courts have and do render judgments against the receiver of Sub Contracting services even with executed Waiver and Hold Harmless statements.  This is why it is imperative any person, business, etc. utilizing the services of an Independent (Sub) Contractor,  address the question of insurance coverage.  Standard Business Insurance policies do not automatically cover the acts of Independent (Sub) Contractors for Commercial General or Professional Liability and Workers Compensation coverage.  Some Insurance Companies for some specific industry classifications will, for an additional premium, include acts of Independent (Sub) Contractors. Other industry classifications will have to purchase their own separate policies, with you or your business named as an additional insured for those policies, policy endorsement or Certificate of Insurance

Often I am asked why as a Sole Proprietor with no W2 employees is required to purchase a Workers Compensation policy. The answer lies in (MN)State Statute that should Independent ( Sub) Contractor / Sole Proprietor be injured at a job site where the Independent (Sub) Contractor does not carry Worker’s Compensation, then the party receiving services from the Sub Contractor is responsible for expenses related to Independent Sub Contractors Injuries.

If you or your business utilizes the services of Independent Sub Contractors, it is time to review this information before regulatory authorities arrive asking you to prove that they are indeed Independent. Further, don’t allow you or your business to be exposed to deep pocket practices with your hard earn assets.  Address insurance coverages  of Independent (Sub) Contractor pro actively before an accident or loss happens.


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