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Determining Your Workers Compensation Responsibility with Independent Contractors

In many general aviation businesses, the use of independent contractors is common:

  • Flight departments utilize independent contractor pilots when employed pilots are not available
  • Flight schools use Certified Flight Instructors (CFIs) who may instruct for other schools
  • Extra maintenance technicians, line service techs or CSRs may be brought into a FBO to handle special events, such as the Super Bowl, which bring in higher than usual traffic

How can you determine when are you responsible for providing workers compensation coverage for these workers?

The manner of payment to a worker (1099 versus a paycheck) does not necessarily matter when determining who is eligible for workers compensation coverage under your policy.

To make matters even less clear, each state has written its own Workers Compensation Act and 29 states have specific (and varying) definitions of “independent contractor” within their act – many states put these definitions in place to prevent employers from skirting the system (and associated premium costs) by classifying all workers as “independent contractors.”  In states which have not specifically defined the term, the common law definition applies.   

While it’s best to familiarize yourself with the state(s) rules in which you do business, a good rule of thumb in determining if someone is covered by your workers compensation is:

  • You are directing and controlling the timing and manner of the work to be performed, i.e. a pilot needs to show up at a specific time to handle a flight going to a specific destination
  • You’re providing the tools to perform the work, i.e. a line service tech utilizes your ramp equipment for ground handling
  • You’ve hired someone to do work for you who does not carry their own workers compensation coverage

Many independent pilots and CFIs do not carry their own workers compensation coverage, so it’s a safe bet that you are providing coverage for them.  If they do carry coverage, be sure to get a certificate of insurance from them.  Otherwise, the anticipated costs for these workers should be included in the payroll estimates submitted to your insurance company which are used to determine your deposit premium.  If you cannot estimate these costs up front, keep track of them throughout your policy period; this will help you anticipate any additional premium which may come due when the policy is audited.

If you hire temporary workers through a staffing agency, the staffing agency should carry workers compensation coverage but be sure to maintain a current certificate of insurance so when it’s time for the insurance company to audit your policy, you can prove to the auditor that other coverage existed for these workers.

Certificates of insurance should also be obtained and consistently maintained from any other service provider working at your premises – including janitorial and building maintenance companies.  Many states will make you responsible for providing workers compensation coverage to the employees of contractors who fail to secure their own insurance.  

Having a clear understanding for which workers you are responsible to provide workers compensation coverage – and being able to estimate those costs up-front at the inception of your policy – will help prevent unpleasant surprises at audit time.  To learn more about protecting yourself on the ground and in the air, contact our team of Aerospace experts.

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