“What is an Employee?” - It feels like a simple question, right? But the truth is, when it comes to insurance matters like covering a worker for their own on-the-job injury or for their negligence in a participant’s injury, there may be a bit more to the story depending on the type of workers you employ.
Tax Status vs Insurance Status
Often, outfitters will think about their workforce by breaking them into a few different categories:
- W2 workers, called “employees”
- 1099 workers, typically called “independent contractors”
- (and then there are volunteers)
While this line of thinking is accurate, the W2/1099 status of an employee versus a contractor is only that worker’s tax status. The status of “employee” or “not an employee” shifts a bit when it comes to insurance purposes. There’s a primary question you can ask yourself to see if someone qualifies as an “employee” under your Worker’s Compensation policy:
Are they under your team’s direction and management while on site? Or do they come in and do their own thing without receiving much direction?
If you’re finding that someone is under your team’s direction (like a paid guest guide), then that worker can be identified as an “employee” by your Worker’s Compensation policy even if they’re a 1099 “independent contractor” when it comes to tax status.
Let’s review some common outfitter scenarios to discuss where workers might fall and what kinds of actions you may need to take in your working relationship with them.
The Fine Print
Before we get too deep into the weeds here, let’s get a few things out of the way:
- Worker’s Compensation laws vary by state.
- The way insurance policies are written vary by carrier.
- I am providing my summary of the insurance industry’s perspective, in general, on the employee/not-an-employee conversation. I am not an attorney and I am not a CPA. Their industry’s definitions of an employee may differ from the insurance industry’s definitions.
- While I’ve taken as broad of an approach as possible to this article, there are too many unique situations to be able to cover them all in one summary article. Anytime you have a question, make sure you are having these conversations with your agent so that carrier-specific policies and state-specific laws can be addressed!
- We use the words “General Liability” and “Workers Comp” a LOT in this article. Let’s shorten those up – “GL” for General Liability, and “WC” for Worker’s Comp.
W2 - “Employee” Workers
These are your standard employees, which makes finding answers a bit more straightforward than the other sections:
- Worker Injury – This is exactly what Worker’s Compensation (WC) is made for! If a paid W2 employee of yours is injured while on the job, they should be covered for their injury under your WC policy. If they are injured while they are not on the job, Worker’s Compensation will not apply. Before participating in your outfitter activities in a guest capacity while off the clock, they should complete your waiver, just to have all bases covered.
- Participant Injury – If your W2 worker is responsible for a participant’s injury, as an employee they should be automatically covered for their negligence under your General Liability (GL) policy. This means that if the worker is specifically named as an additional defendant in a lawsuit against your company, the worker’s portion of negligence will be covered under your GL policy and they won’t need to source their own defense or insurance coverage for it. (It’s worthy of noting that it is becoming more common for lawsuits to name your employees as additional defendants, and it does wind up stretching your business’ liability limits. Adding an Umbrella or Excess policy to your program may be a good idea to make sure your limits are sufficient.)
1099 - “Independent Contractor” Workers
These are the workers classed as “independent contractors” by their tax status. However, the way they interact with and work with your team might class them as “employees” of your business when it comes to insurance status. This will be the most complicated section and the one that most directly necessitates this article.
- Worker Injury – Let’s first identify whether your 1099 worker qualifies as an “employee” of yours or not:
The question you should ask yourself here is – is this worker under my team’s direction and management? Or do I give them a job, they come in and fulfill it in their own way? If you call a WFR trainer to come in and do a training with your team, they bring in their own equipment and you don’t direct how they facilitate their class – they get the job they were given done. That’s an example of an independent contractor.
But if you have an “independent contractor” guide come in, and you or a manager direct the work and how and when it is done, that worker is in more of the “employee” category. If that worker falls under the employee category, any on the job injury they sustain should be covered under your WC policy. If they are injured at your business while they are not on the job, Worker’s Compensation will not apply. Before participating off the clock, they should complete your waiver.
If that worker truly falls under the independent contractor category, they will likely be covered under their own WC policy. Before you work with them, you’d want to get a Certificate of Insurance (COI) from them with proof of their WC coverage. If they don’t have their own WC policy in place, you are responsible for providing it for the worker and would need to include their payroll in your own WC reporting.
- Participant Injury – Before your 1099 worker is responsible for a participant’s injury at your business, you want to have a clear understanding and agreement of where that liability would fall. If the worker is a true independent contractor and does not fall in the “employee” category as defined above, you need to have a contract in place with them! Any contract should be reviewed or drafted by your attorney, but insurance implications in contracts should be additionally reviewed with your insurance agent.
Depending on the scenario and what your contract with the worker outlines, you will likely want to require that they name you as additionally insured on their GL policy. When you get named additionally insured on someone else’s policy, you should have them prove it by providing you with a Certificate of Insurance for GL, generally showing at least a $1 million per occurrence limit on it. Being named additionally insured on someone’s else’s policy means that their coverage is extended to you in certain situations. (They may wind up asking the same thing from you in return.)
Volunteers
- Worker Injury – If a volunteer gets injured while “on the job”, their injury is most likely excluded from WC benefits. Your WC premium is based on payroll, and a volunteer isn’t getting paid anything!
Another option to check for volunteer injury coverage is your GL policy. Volunteer injuries are likely excluded from your GL policy as well, but you may be able to work out coverage here with the GL carrier (prior to an injury occurring) if you want to provide coverage for any volunteer injuries.
Yet a third option here, and most likely the easiest to work out, is having a Participant Accident policy in place. It may even be a coverage you already have as a part of your program! A Participant Accident policy is coverage an outfitter might utilize to cover an injured participant’s medical bills as an act of goodwill, prior to receiving an attorney’s letter of representation or notice of a lawsuit. While it is intended to help with an injured participant’s medical bills, it is often extended to volunteers as well. Discuss with your agent to see if you have a Participant Accident policy that covers injured volunteers or if that is something you may want to consider adding on.
Regardless of your intended insurance coverage, you should at minimum always have your volunteers sign your business’ waiver as a first layer of defense against a potential lawsuit.
- Participant Injury – If a volunteer acting on your behalf is responsible for a participant’s injury, they should be automatically covered for their negligence under your General Liability (GL) policy, similar to the way a W2 worker is covered.
Where to Go From Here
Have a headache yet? Coverage nuances can get complicated, and that’s what makes it so important to have an agent you can lean on for clarity. Hopefully this article has cleared some of the mud for you, but make sure you are discussing any specific concerns or talking through any questions with your agent!
About the Author
Ruthie Rivers is an Adventure & Entertainment Risk Consultant on the Granite Insurance team. She specializes in providing risk management and insurance solutions to the nationwide outfitter industry and, in her past life, she was an operator in the adventure tourism industry. Contact her at rrivers@graniteinsurance.com to continue the conversation, ask questions, or to get a review of your insurance program.