Workers Compensation for Independent Contractors

An often overlooked aspect of hiring independent contractors is the benefits associated with the employment status. In particular, the legislation surrounding workers compensation for independent contractors is notably deceptive, as several considerations play into it despite them not officially being covered by federal or national (in the event of international hiring) laws.

With that in mind, the following article covers workers compensation for independent contractors and how the rules function both in the United States and when hiring abroad.

US Laws 

There is no official workers compensation for independent contractors in the United States, however, there are two important rules about it: 

• “Statutory Employee” Regulations
• Mandates for Contractor-Provided Coverage

The following sections cover both in detail before moving on to international workers compensation laws.

State Exemptions for “Statutory Employees”

Worker’s compensation in the US is covered by two central elements: 

• Federal “Statutory Employee” Rule: A nationwide IRS rule that treats certain contractors as employees for FICA purposes even if they are issued a 1099. 
• State “Statutory Employer” Status: A state-by-state workers compensation doctrine making employers liable for subcontractor injury

While the former applies nationwide, the latter has been voluntarily adopted by a heavy majority of states, with only Alabama, Texas, and Utah lacking such a provision in their workers compensation statutes:

States with “Statutory Employer” Provisions in their Workers’ Comp Statutes

Texas is a particularly unique case because it has no baseline compulsory workers compensation system in place, meaning that workers compensation is entirely elective on the employer’s part for contractors and employees alike.

Contractor-Provided Coverage

Every state in the US (excluding Texas) requires contractors to carry their own workers compensation packages to prepare for the event of 

Workers Compensation Insurance Type	What It Covers	Compared to Workers Compensation
Occupational Accident Insurance	• Work-related medical expenses  • Lost-wage benefits • Disability indemnity • Death benefit	OAI is comparable to workers comp, but VWC is identical by design, providing additional coverage for rehabilitation
Voluntary Workers Compensation	• Same as above
General Liability Insurance	• Third-party bodily injury • Property damage • Personal & advertising injury	Workers comp typically does not cover third-party liability or professional errors, making these options above and beyond what workers comp offers
Employer’s Liability Insurance	• Lawsuits by “statutory employees” or helpers you hire
Professional Liability (E&O)	•Negligence claims • Errors or omissions in services
Disability Insurance	• Short- and long-term disability benefits	Worker’s comp covers everything but vehicular accidents/damage
Health Insurance	• Medical, dental, vision
Business Auto Insurance	• Liability & damage for work-use vehicles

As a final note, larger clients may actually require independent contractors to provide their own workers comp insurance to be considered for hire in order to avoid costly lawsuits.

International Laws

Similar to hiring in the United States, there isn’t generally a mandate for employers to provide workers compensation for independent contractors. A few possible exceptions include: 

• A jurisdiction (country, state, region) has a “statutory-employer” rule that includes the worker in their workers’ comp plan. 
• Local regulations prohibit independent contractors, forcing the employer to classify them as an employees. 

Generally, it’s safe to assume that local statutory schemes will not cover independent contractors, but working with a legal advisor who specializes in the area such as a liability lawyer or an agent of record (AOR) platform should be able to verify for you. 

Some countries do provide contractors the ability to opt-in to their local workers compensation scheme or they require employers to purchase insurance on the contractors behalf. The table below includes just a few examples: 

Workers Compensation for International Independent Contractors 

Region / Country	Scheme Name	Area of Coverage	Contractor Treatment	Real-world Function
Germany	Statutory accident insurance	Federal	Not covered	Employer-purchased private accident cover if they truly engage ICs.
United Kingdom	Employers’ Liability Insurance (ELI)	Federal	Not covered	Contractor-purchased “Personal Accident” policies
Australia	Workers’ Comp. Boards	State-Based	Voluntary opt-in	Contractor-purchased “Contractor’s Accident” insurance.
Canada	Provincial WCB/WCB Boards	Provincial	Limited opt-in	Contractor-purchased private coverage
Mexico	“Seguro de Riesgos de Trabajo”	Provincial	Not covered	Employer-purchased local “Occupational Risk” policies
India	Employees’ State Insurance Scheme	State-Based	Not covered	Employer-secured local accident policies

The important takeaway from this table is that workers compensation for independent contractors varies significantly between different countries, states, and provinces, even though contractors are typically not covered.

In instances where local laws require employers to purchase insurance on a contractor’s behalf, consider the following questions:

International IC Coverage by Quality

Coverage Feature	Average Level of Coverage
	Good	Better	Best
Work-Related Medical Treatment	Emergency care, Hospital stays >$50K	Inpatient/outpatient treatment >$250K	High/unlimited limit,No arbitrary exclusions
Wage-Replacement Benefits	60 % of billable rate for >26 weeks	70 % of billable rate for >52 weeks	80–100% of billable rate
Disability Indemnity (Short-/Long-Term)	>26 weeks at basic % of income	Short-term plus long-term benefit >65	Short and long-termCost-of-living adjustment
Death & Dismemberment	One-time lump sum~1× annual earnings	~2× annual earnings, + benefits for dismemberment	3-4x annual earnings, Spouse/child education
Geographic Scope	Contractor’s home country	Nearby jurisdictions/ common travel dest.	Worldwide
Repatriation Coverage	Medical evacuation to nearest hospital	Evac to best-equipped regional facility	Full repatriation Family travel expenses

Ensuring Compliance for Business Owners

Business owners beginning the process of recruiting and hiring contractors both domestically and internationally can follow a few simple best practices to ensure the best possible outcomes:

• Assess Your Risk Profile (e.g., Trade/industry, hiring practices)
• Shop for packaged “Gig-Worker” or “Freelancer” plans that bundle occupational accident + liability.
• Stipulate minimum limits and require certificates of insurance.
• (If hiring international) Carefully map local requirements for independent contractors
• (If hiring international) Specify insurance requirements in the contract and require proof of coverage (COI) before beginning work

Employers who are still unsure of what to do or how to approach hiring can turn to a variety of parties to stay compliant:

Workers Compensation for Independent Contractors

Options	Pros	Cons	Best For
Agent of Record (AOR)	AOR monitors regulations for you	Requires a “hands-off” approach	Small to midsize companies seeking the most efficient option for hiring contractors
Contractor Management Tools	Requires an in-house team	May face integration issues	DIY business owners who want to keep control over hiring
Liability Lawyers	Allows full control over decision-making	Requires specialists in every relevant country	Enterprise-level companies with the resources for their own

Manage Independent Contractors Globally

It’s not always easy to understand the labor laws and everything that goes into hiring a contractor. Your country might not require a contractor to get insurance from the employer as a benefit. So, if you are hiring in other countries, you need a partner that knows the compliance rules for that country.

That’s where Payoneer Workforce Management comes in; we provide businesses with contractor management tools to manage their own teams, or we provide the option to have ours take over through an agent of record (AOR) service, covering workers compensation for independent contractors while also allowing you to hire without setting up a local entity. Contact us below for more information.