Are 1099 Employees a Potential Liability for your Business?

Posted August 6 2015

contractorsDo you own a business or run a company? If the answer is yes, you are more than likely liable for something, whether it is your employees, customers, product, etc. Depending on your business, you may need coverage for things that other businesses don’t. Having proper business insurance could be the difference between a good business and a closed business. Do you have enough coverage for your company and employees? It is no secret that insurance coverage can be tricky, especially when you thought you had coverage for things that you actually don’t. Lately, we have been hearing about an issue when it comes to coverage regarding business insurance. Some businesses are finding out the hard way when it comes to certain employees not having the coverage they needed. 


The Concern 

As of late, we have been hearing many questions regarding subcontractors, temporary workers, or 1099 employees when it comes to being covered under a general liability or workers compensation policy. There is a lapse of coverage in business insurance policies that could potentially leave your company exposed. 

The Reason 

Typically, 1099 employees are paid under the table, which means their wages do not count toward the taxable wages. This also means that they do not have coverage when it comes to your business insurance, such as your general liability or workers’ compensation coverage. The general liability for your business covers W2 employees of the business. So in order for your employees to be covered, they must be considered part of the business.

The Solution

Each 1099 employee should be required to have their own coverage. It can come from the contracting company they work for if there is one involved, they can have their own policy, or have a filed exemption. It is important for them to have coverage from somewhere else as there is none coming from your business. Also, business owners should make it a priority to request certification to verify that anyone working for them has the proper coverage, before letting them work. A Certificate of Insurance should always be requested and verified. 

Why use Subcontractors? 

After learning how subcontractors and 1099 employees could leave your business liable, it may change your thought process about using them. Yes, there can be red flags when it comes to insurance coverage, but there are a great number of positives and many companies are quite successful using temporary workers or subcontractors. If you have an area of your business where employees experience a lot of risk, it may be more efficient for your company to use subcontractors than to hire full time employees to do the work. Part of the reason is that your business may have to pay a higher premium for employee coverage than a smaller subcontracting company does. 

Don’t let your business go on without the proper insurance coverage it needs. If you have any questions regarding your policy, or are interested in marine general liability insurance or any other type of business insurance, please feel free to contact us at 954-828-1819, or visit MHG Insurance Brokers online at We look forward to being your partner in liability protection. For more information on marine general liability insurance, read our previous blog, “What is the Difference between General Liability and Marine General Liability?