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Workers Compensation is required by law if your organization has employees. But there can be some confusion around who is covered by Workers Compensation, depending on your workforce being W2 or 1099 contractors. In this blog I will talk about what a worker’s compensation policy is, what benefits it includes, and who should be covered.

What is Workers’ Compensation

Workers Compensation policies cover occupational injury and sickness. It is a system that helps cover costs related to on-the-job work injuries including medical expenses, medications, physical therapy, and missed wages. The State of Michigan requires this protection by law for any business with one or more employees, and most organizations comply by purchasing an insurance policy.  If no policy is in place, the employer could be fined $1,000 a day or even face imprisonment.

What this means for your workforce

If a worker is injured on the job and requires medical attention, or loses wages from a work-related injury or illness, the workers comp policy will pay medical needs and replace lost wages for the time they are unable to work.  Depending on the severity of the injury or illness, wage loss and medical expenses can be lifetime benefits.

Example: A church custodian was on a ladder in the sanctuary changing light bulbs when he fell and broke his leg. The workers compensation policy would pay for the ambulance ride to the hospital, surgery, medications, and rehabilitation to mend his leg. Workers compensation would also replace any lost wages he may have otherwise earned due to being off with the injury.

What this means for employers

Workers Compensation also includes Employer’s Liability, which covers legal defense costs when an employee blames your organization’s negligence for their injury or illness. If your organization is sued, employer’s liability will help pay for attorney’s fee, court costs, and settlements or judgements. Typical coverage limits for employer’s liability start at:

$100,000 per accident

$500,000 per disease per policy year

$100,000 per employee

Fortunately, if your organization needs higher limits, they are available and typically very affordable.

Example: An employee at a Food Bank was operating a forklift when they hit a large storage rack, tipping the rack on top of himself causing a serious back injury. The employee blames the Food Bank for his injury and sues the organization. When the case goes to court, the Food Bank’s workers comp policy pays for hiring a lawyer and associated court fees.  And, when the jury awards the employee $100,000 for pain and suffering, the workers comp policy pays the judgement.

Who is covered by a worker’s compensation policy

Typically, only W2 employees are covered under the Workers Compensation policy.  However, if a worker is being paid as a 1099 contractor but should be a W2 employee, medical and wage loss benefits could be available to them. Some organizations will try to save money by paying their workers on 1099 instead of W2, but this can cause more problems and cost the organization even more money if done incorrectly. That’s why it’s important to define the differences between employees and contractors.

Determining worker status isn’t always easy, here are some questions you can ask to help differentiate between the two:

  1. Are they required to follow instructions about when, where, and how to do their work?
  2. Does the organization set the hours of work?
  3. Is the majority of their work performed on the organization’s premises?
  4. Are they paid based on time intervals, hourly or weekly?
  5. Does the organization furnish the equipment necessary to complete the job?
  6. Does this individual perform essential services for the organization?

If you answered “yes” to any of the questions above, generally that individual would be classified as an employee. This means the individual should be receiving a W-2, not a 1099.

Most organizations will need a workers’ compensation policy, and choosing the right coverage doesn’t have to be complicated.

About the Author: Anton Thornquist
Anton Thornquist is the owner of CTG Insurance. Anton purchased CTG from his grandfather Ralph, and expanded the company to begin covering nonprofit organizations of all sizes and causes, as well as human services organizations. Anton saw how these sectors were underserved much like churches were back when the company was founded, so now CTG seeks to help even more kinds of organizations with their important work.

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