Independent Contractors: Avoid Workers’ Compensation Mishaps in Entertainment

by Hub Entertainment Insurance

It is commonplace for the entertainment industry to rely on independent contractors. Whether on stage, in front of the camera or behind the scenes, many individuals and businesses rely on 1099 contracted labor to support the creative process. Examples include an assistant, a runner, or a driver. The problem is that many often misclassify them as independent contractors when they should be counted as employees, and don’t fully understand their responsibilities when it comes to providing workers’ compensation insurance.


Independent Contractor or Employee?

According to the IRS, “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done or how it will be done. An individual is not an independent contractor if they perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if they are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.”

Paying an individual with a 1099 for tax purposes does not mean they will automatically be considered an independent contractor. The classification is based on the IRS definition.

Independent contractors should carry their own workers’ compensation coverage and should provide a certificate of insurance evidencing this coverage is in place.

What is Workers’ Comp?

Workers’ compensation insurance provides medical, disability and rehabilitation expenses for an employee who is injured in the course of their employment. Coverage is mandatory in most states. An individual’s personal medical insurance or coverage through their Union or Guild will not cover injuries that happen in the course of employment—this is why it is important to make sure there is workers’ compensation coverage in place.

Most workers’ compensation policies will cover an employee outside of their state of hire. For example, if you hire an employee in Tennessee and they are covered under a Tennessee workers’ compensation policy, they will also be covered if they work outside of Tennessee.

There are a few exceptions to this rule and you should reach out to your insurance advisor if any of the following occur:

1. Monopolistic States:  If you hire anyone from one of the four monopolistic states: North Dakota, Ohio,Washington and Wyoming, workers’ compensation is only available through a State Fund.

2. New York or Hawaii:  These states have specific, compulsory workers’ compensation and disability requirements; penalties may apply if the required coverage is not in place.

3. Non U.S. Resident:  foreign crew or talent are subject to different laws and require specialized knowledge.

What are the consequences of Misclassification?

If an employee is misclassified as an independent contractor, the consequences can be financially crippling to the employer. State and federal agencies, as well as the IRS, will examine the worker status and make their own determination. A worker may also file a private lawsuit against an employer. FedEx settled an independent contractor mislabeling case for $228 million. FedEx considered and paid their drivers as independent contractors. The court determined that FedEx controlled the drivers and they were independent contractors in name only.

The California Labor Commission ruled that an Uber driver is an employee and not an independent contractor, awarding $4,000 to a driver who filed a complaint. The Labor Commission noted that “Uber vets the drivers, dictates what types of cars they can

use and controls the payments.”

Contact your insurance provider to find out more about the differences between employees and independent contractors. They will ensure you have the correct insurance programs and are in compliance.

Shelby Cude