Employees are eligible for workers’ compensation benefits that cover on-the-job injuries and illnesses, but independent contractors are not eligible for benefits. Some employers misclassify workers as independent contractors instead of as employees, however, to avoid paying for expensive workers’ compensation insurance premiums.
Worker’s Compensation Laws
Businesses with employees are required by law to provide workers’ compensation insurance for employees who become injured or ill on the job. However, state laws do not require employers to purchase worker’s compensation insurance to cover independent contractors.
In some cases, businesses exempt themselves from paying workers’ compensation insurance by classifying workers as independent contractors rather than employees. Although every state has different regulations regarding exemptions, all states consider independent contractors self-employed individuals, not employees. Some states allow sole proprietors, LLC owners, and business partners to exempt themselves from worker’s compensation payments. This type of exemption is commonly found within the construction industry.
Independent contractors provide a service or job that’s typically outlined under a written contract or agreement without direction from an employer. An independent contractor is in charge of all aspects of a job including how the job is handled, who does the work, and how the work gets done. An independent contractor acts independently, not under an employer. In fact, independent contractors typically work for more than one company and provide their own equipment to complete a single job or highly skilled tasks in a single job category.
A worker’s classification by the employer may have little to no bearing on the state’s classification when a work injury occurs. Even a written agreement between the worker and the company that states that the individual is an independent contractor is not enough to exclude the worker from employee status. Instead, the state workers’ compensation board will use the circumstances of the individual’s work to make a determination.
In Illinois, workers’ compensation laws require employers to purchase insurance that covers work-related injuries and occupational diseases. Employers that have one or more employees must report all injuries to the state Workers’ Compensation Commission if an employee misses more than three workdays due to work-related injury or illness.