What is the difference between a 1099 and an employee?
A 1099 worker is someone who does work for you but is not your employee. You give them a 1099 form at the end of the year to show how much they were paid. An employee is someone who works for you regularly, and you give them a W-2 form to show how much they were paid and how much tax you took out.
This difference matters for insurance. Workers' compensation insurance usually covers employees, not 1099 workers. This is especially important for a one-person business like yours.
For example, if you hire someone else and they are an employee, your workers' comp insurance must cover them. But if they are a 1099 worker, your policy does not cover them. That choice affects your insurance needs.
What does workers' comp insurance cover?
Workers' comp insurance pays for medical bills and lost wages if a covered person gets hurt at work. It only covers people who are your employees.
If you hire someone and they are an employee, their injuries are covered by your policy. But if they are a 1099 worker, your policy does not cover them. They should have their own insurance if they get hurt.
Workers' comp also has special rules for the owner of a one-person business. By default, the owner is not covered. You can choose to include yourself in your policy, but it costs more. This is called an owner inclusion election and is made when you get your quote.
Why does being 1099 or an employee change your insurance?
The law decides who must be covered by workers' comp. If you are an employer, you must cover your employees. If you hire a 1099 worker, you are not required to cover them with your policy.
This means if you are a one-person business and you hire someone else, you must decide whether they are an employee or a 1099 worker. Your insurance will change based on that choice.
If you are the owner, your own coverage is separate. Most policies exclude the owner by default. You can choose to include yourself, but it will cost more. That choice is made when you get your quote. It is called an owner inclusion election.
What should you do if you need insurance?
If you are a one-person business and you need workers' comp insurance, you can get a quote right now. Most states require this if you have employees.
When you get your quote, you will also choose whether to include yourself in the coverage. That is your owner inclusion election. It costs more, but it can help if you get hurt at work.
For 1099 workers, they must have their own insurance. You are not required to cover them with your policy. Make sure they know about their own insurance needs before hiring them. If they are injured, their own insurance would help them, not yours.
How do you know if you need to cover yourself?
Your state decides if you need to have workers' comp insurance. It usually depends on whether you have employees. If you do, you must cover them.
But what about you, the owner? You are not an employee of your own business. Most policies exclude you by default. That means if you get hurt at work, your policy will not help you. You can choose to include yourself, but it costs more.
Think about what you do every day. Are you at risk of getting hurt? If yes, it might be worth paying more to include yourself in the policy. This is a choice you make when you get your quote. It is called an owner inclusion election.
What if someone asks for a certificate of insurance?
If you are asked for a certificate of insurance, it means someone wants proof that your business has workers' comp coverage. A ghost policy is a type of policy that gives you a certificate but does not cover you, the owner, unless you choose to include yourself.
This is common for one-person businesses. A ghost policy proves that your business has insurance, which is often needed to get a contract or approval. But by default, it does not cover you if you get hurt at work. You can choose to include yourself when you get your quote.
If you are not covered, and you get hurt, your policy will not pay for your medical bills or lost wages. But if you include yourself, it will. That choice is yours to make when you get your quote.
What happens if you misclassify someone?
If you call someone an employee but treat them like a 1099 worker, you might be breaking the law. Your insurance will not cover them if you misclassify them. You could also be asked to pay back taxes or fines later.
For example, if you hire someone and tell them they are a 1099 worker, but you give them a W-2 form and control their work schedule, you might be misclassifying them. That can get you in trouble with the law and with your insurance company.
Always check with your state about who is considered an employee. You do not want to miss a rule and lose coverage when you need it most.
How to choose the right coverage for your business
Your business structure decides a lot about your insurance. If you hire people, you must cover them. If you work alone, you can choose to include yourself in your policy.
When you get your quote, you will see the cost for including yourself. It is higher than the base price, but it can be worth it if you do risky work. The cost depends on your state and the kind of work you do.
You can also get a ghost policy if you need a certificate but do not want to cover yourself. This is common for one-person businesses. But remember: the policy does not cover you by default. You must choose to include yourself when you get your quote.
