Do You Need Workers’ Comp for 1099 Contractors? (Spoiler: Probably Not)

If you’re a small business owner hiring independent contractors, chances are you’ve asked (or Googled) this question:

“Do I need to provide workers’ compensation insurance for 1099 contractors?”

Here’s the short answer: Probably not—but it depends on how the relationship is structured and how your state defines an “independent contractor.”

Let’s walk through what you need to know so you can protect your business, stay compliant, and avoid paying for coverage you don’t legally need.

What Is Workers’ Compensation?

Workers’ compensation is a type of insurance that covers medical expenses and lost wages for employees who get injured on the job. In most states, it's required once you hit a certain number of employees (often just one).

It’s designed to protect both you and your employees if something goes wrong—whether it’s a slip on a job site or a repetitive strain injury.

Do 1099 Contractors Need to Be Covered?

In general, no—independent contractors are not considered employees, so you typically don’t have to provide them with workers’ compensation insurance. That’s one of the reasons businesses hire contractors in the first place: lower overhead and fewer compliance obligations.

But here’s where things get tricky: just calling someone a contractor doesn’t make it so in the eyes of the law.

Misclassification Is Where Business Owners Get Into Trouble

If you treat a worker like an employee—set their hours, tell them how to do their job, provide equipment or training—they might actually be an employee by legal definition, even if you issued them a 1099 instead of a W-2.

And if they get injured while working for you and you should have classified them as an employee, you could be on the hook for:

• Unpaid workers’ comp coverage
  
  
• Medical bills
  
  
• Back taxes and penalties
  
  
• Potential lawsuits
  
  

Each state has its own test (ABC Test, IRS 20-Factor Test, etc.) to determine worker classification, and some states are stricter than others.

What Should You Do If You Use Contractors?

1. Confirm their classification is legitimate.
 Use your state’s definition to make sure your contractors are truly independent. If they fail that test, you should treat them as employees—which means workers’ comp likely applies.

2. Ask for a certificate of insurance.
 If your contractors carry their own workers’ comp coverage (common in trades or higher-risk fields), ask for a copy of their certificate. That way, you’re protected if something goes wrong.

3. Talk to your insurance provider.
 Even if coverage isn’t legally required, your insurer may still count 1099 contractors in your total risk if they perform similar work to employees or if there’s potential liability exposure.

4. Consider a general liability or subcontractor agreement.
 Workers’ comp might not be required, but you still need protection. A clear subcontractor agreement and proof of their insurance coverage can help reduce your liability.

When Might You Need Workers’ Comp for a Contractor?

There are a few cases where you may need to provide coverage, such as:

• Your state requires coverage for all workers, regardless of classification
  
  
• The contractor doesn’t carry their own coverage, and your worksite presents significant risk
  
  
• You’re in a high-risk industry like construction or manufacturing
  
  
• Your insurance carrier includes all workers in your policy review
  
  

When in doubt, check with your state’s labor department or an insurance advisor who understands your industry.

Final Thoughts: Labeling Isn't Enough—Know the Law

You probably don’t need workers’ comp for independent contractors—but you do need to make sure they’re truly independent. Misclassification is one of the most common compliance mistakes small businesses make, and it can be expensive.

At CadenceHCM, we help growing businesses get clarity on compliance, protect against risk, and set up smarter HR and payroll systems that reduce guesswork.