When you need… Workers’ Compensation
Workers’ compensation is a mandatory policy for all organizations that have employees. But, there can be some confusion around who is considered an employee vs. a subcontractor, and when your organization needs a workers’ comp policy.
So, what is workers’ compensation? It is a system that ensures benefits are paid to workers if they become injured while performing their duties on the job. The State of Michigan requires this by law, and most organizations comply by purchasing an insurance policy from a private insurance company.
What this means for workers: If you are injured on the job and require medical attention, or to take a leave of absence from a work-related injury or illness, the workers comp policy will pay for your medical needs and replace lost wages for the time you're unable to work.
What it means for organizations: Workers comp policies protect employers in the event of a lawsuit that may arise from their employees work-related injury or illness.
It's also important to define the differences between employees and contractors. Determining worker status isn't always easy but can be very costly if not done correctly. 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. You can reference the full IRS 20 Factor Test for additional help. Something to keep in mind; if you have the wrong coverage (or no coverage) in place, the State of Michigan can fine the organization up to $1,000 per day until appropriate coverage is obtained.
Most organizations will need a workers’ compensation policy, and choosing the right coverage doesn’t have to be complicated. Give us a call to make sure you’re covered.
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