I had two conversations with clients last week regarding the difference between 1099 contractors and W2 employees when it comes to insurance. This is an important distinction to get right for a number of reasons.

Many new business owners want to hire 1099 contractors for one main reason. It’s cheaper. They don’t have to pay payroll taxes, and they don’t need a workers comp policy. This is absolutely true. The issue is, not everyone can be a 1099 contractor.

In order for someone to qualify to be 1099, the business owner cannot train them on how to do their job. They also cannot when to do their job or them how to do their job. There are more qualifications, but these are the big three that most people would fail on. Here is what the IRS says on it.

The other thing is, when someone is hired to do a job, there needs to be some sort of workers compensation coverage in place. If you are a business owners with W2 employees, by law you need a workers comp policy to protect these employees if they get hurt on the job. If you hire a 1099 contractor, you are not obligated to have a WC policy, but the contractor is and you have to collect proof of that to have on file.

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