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Mar30

An employee who received a 1099 needs workers comp?

Our accountant decided to give 1099s to three of our employees, two of them because they received a loan from the company and the other one did some consultancy from his home.
Every year we have an audit for our worker’s compensation policy. The auditor included these employees that receive 1099 as an additional cost to our policy. But they are our employees, they are already included in our workers compensation insurance.
Is it correct that because they receive a 1099 our workers compensation policy has to increase?

No, you do not have to cover these employees twice because of this accounting situation. However, you may want to rethink the whole 1099 idea. It sounds like this bit of creative accounting is causing more problems than it is solving.

Independent contractors receive a 1099. Employees do not. The individual is an employee, not an independent contractor, when you control when, where or how he or she works (even if that work is being done from home.) So the consultant may have genuinely been an employee.

Also, when you treat someone as an employee, then usually they are considered an employee legally, even if their work could be considered consulting (as an independent contractor.) So it is probably not a good idea to issue 1099s to these employees. It may also be seen by the U.S. Department of Labor as an attempt to avoid overtime payments and other labor laws.

The two employees were received a loan from the company were issued 1099s because otherwise, you have to pay tax on the money you paid them. But that does not make this a good idea. Frankly, this is just one of many problems that you get into when you loan money to employees. The solution here is to stop, or to draw up formal, legal loan papers, bite the bullet and pay taxes on the loaned amount.

Normally 1099 employees are not entitled to workers comp coverage, anyway. It appears the auditor believed that these workers are genuinely employees and not independent contractors. Which means you are probably breaking the law, by treating them as independent contractors. Even so, you should not have to pay workers comp on these employees twice. If they were included in your original total, they should not also be added again.

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This entry was posted on Monday, March 30th, 2009 at 2:28 pm and is filed under
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8 Responses to “An employee who received a 1099 needs workers comp?”

  1. Beverly Says:

    Thank you so much for your answer. It has helped me a lot.

  2. Caitlin Says:

    Hi Beverly! You are more than welcome! Feel free to post any additional questions you may have!~Caitlin

  3. JUDY Says:

    I own a travel agency and have independent contractors. I want to supply them with business cards, letterhead, etc. My concern is will this still be okay and not interfere with their independent contracting status or will I have to provide them with workers compensation. The contractors work from their homes, work when they want to and are paid commission only.

  4. Caitlin Says:

    Hi Judy! Because the employees work when and where they like, they are probably correctly classified as independent contractors. Having a business card and letterhead does not automatically change that, especially in the travel industry where independent contractor arrangements are very common. HTH, and thanks for reading the blogs!~ Caitlin

  5. Hyun Nalley Says:

    Thank you for a great Blog and some superb posts. As a new Blogger, I know that I have a lot to learn, and who better to learn than from someone like yourself who has achieved so much? Your Blog is a true inspiration.

  6. Caitlin Says:

    Thanks for the kind words, Hyun!~ Caitlin

  7. Chris Says:

    I had a 1099 employee get rear ended at a stop sign. He was not at fault and was driving one of my vehicles on his way to help me do some touch up work from a snow storm. He now has some pain and has seen a chiropractor. Do I have any responsibilities for this situation? We have not carried workman’s comp insurance because they are seasonal help and only if it snows.

  8. hrlady Says:

    Hi Chris,
    Be careful using the term “1099 employee”. A worker is either an independent contractor receiving a 1099 or an employee receiving a W2. In general, independent contractors are hired by you, not employed by you, to perform a specified project in a skilled area for duration of time with their own tools. You’re not required to provide worker’s comp coverage for independent contractors but you’re required to do so for employees. The concern in this situation is that the worker’s classification as a contractor may be questionable since he was driving an agency vehicle. Most independent contractors use their own tools ie vehicles. If he was driving his own vehicle there would be no question about his classification and you wouldn’t be held liable. Unfortunately, there is not a definitive answer to your question. Even if you’re confident that you’re worker is an independent contractor per IRS definitions, one could argue that the accident occurred with a company vehicle and the company should be liable for the medical needs of the occupants. Do you have a signed contract clearly stating the worker is a contractor and must be self-insured? If so, this may help you in your defense for not being liable. You may want to consider assisting the employee with his medical bills if he requests so from you and setting stricter/clearer guidelines for future contractors. HTH.

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