What is Workers’ Compensation? Is everyone in a business supposed to be covered by it? What happens if I don’t have Workers’ Compensation for my employees? What’s the difference between an independent contractor and an employee? Why was Workers’ Compensation implemented?
Workers’ Compensation (WC) is also referred to as Workers’ Comp, Workman's Comp or just Work Comp. It is an insurance policy bought by an employer to cover the injuries of their employees while at work or sustained from their occupation. In Nebraska, employers are legally responsible to cover every employee with Workers’ Compensation insurance. However, the business owners/employers themselves are not required to be covered, and independent contractors are not required to be covered either (however, business owners/employers can elect to be covered).
The basis for creating a WC program is because it is mutually beneficial for both the employer and the employee; the employer benefits because the employee cannot sue the employer for injuries sustained if there is a WC policy, and the employee benefits because they know that any injury that occurs while they are working will be fully paid. If there wasn't Workers' Compensation in place, injured workers would have to file legal suit and go through a long process to get the money they deserve. Moreover, there's no guarantee that the firm would have adequate funds to pay if the worker was able to win their case in court.
What about independent contractors?
Workers' Compensation can get complicated when dealing with independent contractors because the line separating employees from independent contractors is blurry. In Nebraska, the process to determine whether someone is an independent contractor or an employee consists of a ten-factor test. It covers items such as the amount of control the business has over the person, the amount of skill required, who provides the tools, if the person can work without supervision, and a few more factors go into determining the person’s status. Each of the ten factors carries a different weight, depending on the situation. So if there is any question on whether someone is an employee or an independent contractor, it’s always better to just cover them in the WC policy, as failing to cover an employee with a WC policy is taken very seriously in Nebraska. The following is an excerpt from the Nebraska Department of Insurance’s Workers’ Compensation website:
"What are the penalties for an employer's failure to provide workers' compensation insurance coverage?
Any one or more of the following penalties may be applied:
1. A civil fine not to exceed $1,000.00 for each violation. Each day of continued failure to secure coverage constitutes a separate violation.
2. Imprisonment for not more than one year, a $1,000.00 fine, or both.
3. An enjoinder from doing business in Nebraska until compliance is secured.
Also, an injured employee may sue the employer for damages in district court, and the employer will lose its common law defenses."
As you can see, the penalties for not covering an employee (or an employee you thought was an independent contractor) could be substantial. Even only having a single, part-time employee requires Workers' Compensation insurance. Furthermore, great care should be taken when determining someone as an independent contractor.
This article is an introduction to Workers' Compensation for Nebraska only. Each state's Workers' Compensation program varies, and one cannot rely on this information for any other state's program. Any Workers' Compensation question should be discussed with your agent or the department of insurance. Copple Insurance Agency is here to answer your questions as well.