Commercial Insurance Implications of Employees vs Contractors

Last week, Dallas attorney Henrietta Munoz, wrote a guest post outlining the Department of Labor’s interpretation of when is a contract person an employee.  If you control what the worker does and how they do it (behavioral), control how they are paid (financial), and outline the structure of the relationship, then there’s a good chance they are an employee (see

If a person is truly an employee under the new DOL interpretation, then the implications for business owners are huge; their employment status will need to be changed if they are part time workers, taxes withheld, unemployment collected, and the determination whether or not to extend benefits.  Moreover, business owners will need to review their hiring practices to confirm they are not discriminating, providing equal pay, complying with the Americans with Disability Act, and much more.  There are also commercial insurance implications to consider including employment liability and health insurance!

Employment Liability:  Most commercial general liability insurance can be written with optional employment practices liability, or EPLI, coverage.  EPLI is designed to protect the business against claims of sexual harassment, discrimination, failure to employ or promote, wrongful discipline, deprivation of career opportunity, wrongful infliction of emotional distress, and mismanagement of employee benefits.

EPLI coverage reimburses the company for defense costs, judgements, and settlements if an employee sues for any of the items mentioned above.  Items not covered by EPL insurance include civil or criminal fines, or punitive damages, They also do not cover workers compensation liability.

Ways to lessen risk include creating effective hiring and screening programs, posting company policies throughout the workplace, providing a clearly written employee handbook containing company policies, communicate what steps employees are to take if they experience sexual harassment or discrimination, and document everything brought up by an employee or contractor.

I’d also suggest reviewing your commercial general liability policy to confirm EPL coverage is included.  Any company with part time or full time employees should have employment liability coverage.  If it’s not included, add it.  If it is included, confirm you have enough coverage to fully protect you against a claim by discussing with your insurance agent.

Health Insurance:  Does your company provide health insurance either through a group plan or by paying some or all of the cost for an employee to participate in one of the Affordable Care Act plans?  At what point do you provide this coverage?  If it is based on the number of hours worked, you may need to offer it to anyone who now qualifies as an employee under the DOL interpretation.  Failure to do so  could result in an employment practices claim.

Ultimately, I believe businesses of all sizes will need to consult an attorney or human resources consultant to review their compliance with the DOL stance.  I also believe conferring with your commercial insurance agent to do a little risk management will be some time well spent.  What do you think?  Share your questions, comments, and what you’re doing with me on my Facebook, Google +, and LinkedIn pages.  I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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