Understanding Coverage for Independent Contractors
With the passing into law of California Assembly Bill 5 (AB5), we have witnessed a subsequent change within the insurance industry as it relates to providing the now-required workers’ compensation insurance for independent contractors. This has especially been a prevalent issue for California’s trucking companies. As AB5 has made it law to provide workers’ compensation for all 1099 independent contractors, we want to make sure you understand how your insurance company is behaving in terms of premium charges for this coverage.
Note that in this article, we are not addressing the employer’s liability of having 1099 contractors as part of your fleet, which is substantial. That’s a different article for a different day. What we are addressing is the cost in premiums you should expect to be charged to cover workers’ compensation for those 1099 independent contractors you employ by insurer.
Landmark AB5 affected the worker status of millions of previously classified independent contractors in the state of California. As the law codified the ABC Test to determine whether a worker is considered an employee versus an independent contractor, it has made it difficult to use labor in the form of true independent contractors, as felt by California’s trucking industry.
While the California Trucking Association would love to see this law overturned, the most recent Ninth Circuit ruling has locked in the law and additionally, the Supreme Court has declined to hear the CTA’s challenge to the ruling. So, accepting that this is the landscape in which it looks like we must move forward, we want to look at how this law affects subsequent insurance coverage and the rates you are charged for such coverage.
Enough time has passed by now to feel the ripple effects of AB5 and its impacts on your workers’ compensation insurance premiums. Some of you may have been caught off guard with an unexpected rise in premium charges based on how your insurance carrier assesses premiums for independent contractors.
At Trucking Proud, the transportation division operated by C3, we take a holistic view of workers’ compensation coverage so that trucking companies don’t get blindsided and sticker shocked when their premiums are due. We want to help you understand how a company may charge premiums, and the best way to assess and optimize your options and essentially, your costs.
For consideration, when it comes to insuring your fleet, are you paying as much in workers’ compensation insurance premiums for your 1099 independent contractors as you are for your W-2 employees? If so, you may want to consider a company that takes into consideration your payroll differences between these two types of workers and differentiates premiums.
Consider truck ownership for your 1099 independent contractors. Are you being charged the same premium across the board regardless of truck ownership status? If the independent contractor you employ owns and operates their own vehicle while employed by you, you may only pay a percentage of the pay in premium for workers’ compensation insurance versus a full 100% percent of revenue paid to an independent contractor as counted in your workers’ compensation policy payroll. This is because payments to independent contractors typically include items other than compensation. For example, fuel costs, insurance, truck usage are all factors that go into the overall compensation to independent contractors. Each insurer has the right to audit the payments to independent contractors up to 100%, but we have found that various insurers are actually charging different amounts.
For reference, we’ve included the below chart to depict how various insurance companies assess the percentage of revenue paid to 1099 independent contractors as counted in the workers’ compensation payroll.
For questions about audits, rates, premiums, and any inquiries and explanations to ensure you’re accurately paying in regards to workers’ compensation premiums for 1099 independent contractors, feel free to reach out to me. With expertise in this space, I’m excited to lead you through this new landscape in workers’ compensation insurance premiums.
