What/Who is a “Covered Worker”?

If you’ve ever been through an employment audit by a state agency, you’ve no doubt come across the term “covered worker,” and you’ve probably been utterly confused by it. Below is a brief explanation of the term, and how it applies to employees and independent contractors.

As you may know, Washington State Employment Security Department (ESD) and Department of Labor & Industries (L&I) administer state-run insurance programs. ESD administers our state’s unemployment insurance program, which pays unemployment benefits to Washington workers when workers become unemployed. L&I administers our workers’ compensation program, which pays insurance benefits to workers who are injured on the job. So generally speaking, a “covered worker” is a worker who ESD and L&I believe is covered (i.e. entitled to benefits) under their respective insurance programs, and on whom employers should accordingly be reporting and paying quarterly insurance premiums to the state.

Who is a covered worker? In Washington all employees are covered workers. No exceptions. And thus every employer should be keeping track of employee hours and reporting those hours to ESD and L&I, and paying the appropriate premiums. What about independent contractors? Well…business owners assume that only employees are covered workers, and that they need not pay ESD or L&I premiums for independent contractors. This assumption, however, can be incorrect, and for many employers, it can be a costly mistake. The reality, which comes as a surprise to many business owners, is that independent contractors can also be covered workers. And if an independent contractor is found to be a covered worker during an audit, then a business will be assessed owed premiums (which can go back 3 years), along with penalties and interest for non-payment of premiums.

How do you determine if your worker is a covered worker? As stated above, consider all your employees to be covered workers. They absolutely are. If you have independent contractors, you should presume them to be covered workers as well, unless you are satisfied that they pass ESD’s test and L&I’s test exempting independent contractors from the covered worker definition. Both L&I’s and ESD’s exempt independent contractor tests inquire into whether the contractor:

1)      Is free from direction/control

2)      Works away from the business owner’s place of business

3)      Is operating as an independent business

4)      Files federal taxes as a business

5)      Is registered with the state as a business

6)      Keeps books and records for their business

7)      Has valid contractor’s licenses/registrations (if applicable)

An independent contractor who does not pass each part of this test is a covered worker.

For today’s takeaway, then, don’t assume that an independent contractor is not a covered worker. Instead presume he or she is a covered worker, unless the contractor meets the above test, or some other exception (e.g. an employment exclusion). If you’re concerned that your independent contractor may not meet the above test, seek out an experienced attorney to determine your options to get into compliance.



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