When Do You Need to Provide Workers’ Compensation Insurance for Contractors and Freelancers?

If you operate a business, you may sometimes require outside help. When enlisting the assistance of freelancers and contractors, understanding your obligations as they pertain to workers’ compensation laws is essential. While many businesses are required to secure workers’ compensation insurance for traditional employees, rules for outside help can be more nuanced.

What Laws Apply?

Coverage requirements regarding independent contractors and freelancers can vary depending on your business’s location. For example, Illinois law does not generally require businesses to provide workers’ compensation insurance for independent contractors.

The Illinois Workers’ Compensation Commission defines coverage requirements based on the nature of the working relationship. If a worker is classified as an employee, regardless of job title, they typically must be covered. However, independent contractors are not generally entitled to workers’ compensation benefits.

That said, misclassification is a major risk. If a contractor is found to function like an employee, such as by taking specific directions on how duties are conducted or working regular hours, your business could be held liable for failing to provide coverage. Noncompliance could lead to significant financial penalties.

How to Assess Coverage Needs

To determine whether you need to provide workers’ compensation insurance coverage for a specific individual, consider the following steps:

• Assess the worker’s classification. Are they truly independent or do they function like an employee of your company?

• Review your contracts. Confirm that documentation clearly outlines the scope, payment terms and independence of the contractor.

• Consult legal or HR professionals. Misclassification can be costly, so it’s wise to get expert input, even if you must enlist outside help.

We’re Here to Help

Workers’ compensation insurance laws in Illinois can be complicated. While businesses typically don’t need to provide coverage for freelancers and independent contractors, proper classification and documentation is critical. Even slight misunderstandings or errors could impose costly consequences.

Contact Contigo Insurance Agency in Palatine, IL, today to discuss your situation and get the advice of our knowledgeable and experienced team.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.