TL;DR: Understanding the difference between employees and independent contractors is key for both tax obligations and insurance coverage. This blog explains how worker classification impacts coverage in New Hampshire and Vermont, and outlines the insurance options that independent contractors may consider.
- Proper worker classification affects both taxes and eligibility for insurance coverage.
- Employees are often covered under an employer’s insurance and may receive benefits such as health, disability, and retirement plans.
- Independent contractors usually need to secure their own coverage, such as general liability, professional liability, commercial auto, property, or health insurance.
- State laws in NH and VT influence requirements, particularly for workers’ compensation and liability protection.
- Independent contractors have more responsibility for their own protection but also flexibility to tailor insurance to their work.
Business owners have a lot at stake when determining whether individuals are employees or independent contractors. The largest issue with making this determination involves taxes and insurance.
In this blog, we’ll discuss employee classifications and how they relate to private contractor insurance. Continue reading to learn the ins and outs of insurance for independent contractors vs employees in NH and VT.
The Importance of Classifying Employees
A business has specific responsibilities for employees. They have the legal obligations to withhold and pay certain taxes (Medicare, Social Security). Businesses must also pay other taxes (unemployment).
If a business makes a mistake with classifying employees, it faces the financial burden of paying additional taxes. Such businesses could well be punished with substantial fines.
However, there are issues that are just as critical regarding determining a service provider’s status and insurance.
Understanding Coverage Status
Property and liability business insurance defines the persons who qualify for protection under a given insurance policy.
- Property coverage: Written for the direct benefit of the first party. That is, the party that owns either real or business personal property.
- Liability coverage: Written on behalf of persons defined as insureds. It protects them against the harm they may cause to others or the damage they cause to property that belongs to others.
Under insurance contracts, the second party is the insurance company.
Employees are commonly granted coverage status in a variety of instances. However, coverage typically is not available to independent contractors who are considered unrelated third parties.
Independent Contractor Insurance vs Employee Insurance
Because of the position held by policyholders/insureds and insurance companies, the classification of workers is often in conflict. This is because insureds desire liberal coverage and insurers wish to restrict protection to qualified persons. However, both parties are best served when worker classifications are clear.
Premiums charged to policyholders are based on correctly recognizing the parties eligible for coverage. Proper classification keeps coverage affordable and makes the insurance process more efficient.
Coverage involving employees should be connected to the applicable business that employs them. Coverage involving independent contractors should be connected to the contractors. In other words, they should secure their own, separate coverage.
How to Classify Employees in New Hampshire
In the U.S., common law helps determine worker status. Some confusion is created by an improper focus on a given work relationship.
Proper worker classification is a result of looking at the total work situation in which an individual performs. Essentially, classification is a matter of control.
Specifically, consider the following areas:
- Behavioral: Who has primary control over how work is done, the business or the worker?
- Financial: Who controls how a worker is paid, how are expenses handled, who is responsible for supplies and tools that are needed for work?
- Relationship: What defines the working relationship and manner of payment? What benefits are in place? Does the worker have paid vacation?
It’s important that all the above factors be considered when evaluating a worker classification. Evaluation should be performed on a simple scale. The greater the control a given party has over how a classification is made. If a business exerts greater overall control, the worker is an employee. If the individual worker exerts greater overall control, the worker is an independent contractor.
Considering the Nature of the Work
Practically speaking, areas of control involve the level of freedom a worker has in getting tasks done. Still, another element is the nature of the work.
Some businesses want to minimize both their tax liability and legal liability (and related payroll costs). They accomplish this by the use of independent contractors.
However, the situation can’t be a façade. If workers have an ongoing relationship with the applicable business, likely the work involves employees. When the work is unusual and lasts for a short period, the work likely involves independent contractors. This is especially the case when it involves specialized labor or skills not existing in that business.
What to Do If You’re Unsure About a Classification
If a business or a worker is unclear about a classification, help is available from the IRS. Specifically, a work situation description can be submitted to the IRS to get its interpretation. Having that department’s help (and documentation) is quite helpful in dealing with both tax and insurance matters.
What Types of Independent Contractor Insurance Are Available?
Independent contractors often handle their own business risks. That means insurance protection works differently than it does for employees.
Ultimately, the right coverage depends on the type of work being performed. However, there are several common policies that independent contractors may consider:
- General Liability Insurance. Helps protect against third-party claims of bodily injury or property damage. This is often one of the first types of insurance an independent contractor looks into.
- Professional Liability Insurance (Errors & Omissions). Especially important for contractors who provide professional services or advice. This coverage may respond to claims of negligence or mistakes.
- Commercial Auto Insurance. Independent contractors who use vehicles for business purposes may need a policy designed for commercial use. The alternative is relying on a personal auto policy.
- Workers’ Compensation. Independent contractors may not be required to carry workers’ compensation for themselves. However, it may apply if they hire subcontractors. Requirements vary by state, including in New Hampshire and Vermont.
- Property Insurance. Protects tools, equipment, or office space used in the course of business.
- Health and Disability Insurance. Independent contractors often secure individual or private plans for health and income protection.
Ultimately, contractor insurance addresses the risks that employees are covered for under an employer’s policies.
Independent Contractor & Employee Benefits: What’s the Difference?
The distinction between employee and independent contractor status extends beyond taxes and legal obligations. It also affects access to benefits and insurance.
Employee Benefits
Employers often provide group health insurance, retirement contributions, paid time off, disability coverage, and workers’ compensation. These benefits are built into the employment relationship and are typically managed by the business.
Independent Contractor Benefits
Contractors generally do not receive benefits from the businesses they work with. Instead, they have the flexibility to choose their own insurance coverage. This may include health insurance, retirement savings accounts, and independent contractor insurance policies such as general liability or professional liability coverage.
While employees rely on employer-provided benefits, independent contractors take on more responsibility. However, they also gain more control over tailoring their coverage to fit their work and lifestyle.
Independent Contractor Insurance in NH and VT
State laws and industry practices influence which types of coverage may apply.
Workers’ Compensation Requirements in NH & VT
In New Hampshire, most employers are required to carry workers’ compensation for employees. Independent contractors are generally not included. However, some industries, such as construction, may require proof of coverage before a contractor can begin work.
Vermont has similar requirements, with independent contractors typically excluded unless they hire others to work under them.
Liability Concerns in NH & VT
Many contractors in both NH and VT work in trades, consulting, or professional services. General liability and professional liability insurance are often considered. They may help protect against third-party claims that arise during business activities.
Commercial Auto Use in NH & VT
Contractors in rural areas of Vermont or across New Hampshire may rely heavily on vehicles for work. In these cases, a commercial auto policy may be more appropriate than a personal auto policy. This is because business use can fall outside the limits of personal coverage.
Health and Disability Options in NH & VT
Because independent contractors are not eligible for employer-provided benefits, they often secure health or disability coverage independently. Options may be available through private insurers or state healthcare marketplaces.
Call Colby Insurance Group to speak with an insurance specialist at 800‐392‐6532.
Clear worker classification determines how coverage and benefits are handled. Independent contractors in New Hampshire and Vermont often explore their own insurance options. In contrast, employees typically rely on employer-provided benefits.
Taking time to evaluate these differences helps ensure that coverage aligns with your work and responsibilities.
To consult with a business insurance advisor call 800-392-6532 or email insure@colby-group.com
This article is for informational purposes only. Insurance needs and coverages vary, therefore the terms of your policy will be specific to your situation. We recommend that you discuss your insurance needs with a licensed agent for details on pricing, coverages, and exclusions.
