This coverage, a requirement if you have any employees in the state of Pennsylvania, is generally referred to as “workers comp.” It pays for reasonable medical expenses and replaces a portion of lost wages for an employee who is injured in the course of employment, regardless of who was at fault. When a worker dies as a result of injuries sustained while working, the insurance may provide compensation to the employee’s family.
There is a great deal of confusion when choosing an “employee” classification vs. an “independent contractor.” This designation determines your workers’ comp insurance obligations as well as how you’ll handle many payroll and tax issues. If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing these services are employees or independent contractors. If a worker is an employee, you as the employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages (among other things).
If a worker is an independent contractor, you generally do not have to withhold or pay any taxes on payments to that worker. You also do not need to carry workers’ comp insurance for independent contractors.
Not sure how to tell the difference? We advise that you consult a trusted tax professional when making these determinations. For more information, please visit https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
Workers’ compensation premiums are largely based on the amount of payroll a business runs annually. The business owner will provide an estimated payroll amount to the insurance company, which is used to calculate the premium. The annual premium audit (also known as the payroll audit) determines your actual premium owed for the policy period. You then receive either a refund, or an invoice for any additional payment owed, based on how the estimate and the actual numbers compare. If you want to avoid overpaying or underpaying, many insurance carriers are now offering a “pay as you go” workers’ comp plan, with a monthly reporting form. Ask us for more information.