What You Need to Know About Insurance for Gig Economy Workers
As the gig economy model has grown, more and more businesses turn to freelance and contract workers to support their growth. However, this model can present some complications in classifying workers and the requirements that each must carry, including insurance for gig economy workers.
The IRS has strict guidelines about what type of worker qualifies as an independent contractor as opposed to an employee, and getting these right can help you avoid potential penalties. First, it's important to understand the nuances between the different types of workers in the gig economy and their specific insurance requirements.
An independent contractor is a blanket term that can cover various types of independent work. This person may work at a client's office or in their own workspace, and they're often paid an hourly rate. Independent contractors are responsible for paying their own taxes, insurance and benefits. If they work at a client's workplace, they may also be asked to carry general liability insurance, which covers bodily injury and property damage.
A freelancer is someone who's self-employed and provides specialized products and services to clients. They own their business, market their services and set their rates. While they may visit their client, they work from their location with their equipment. Freelancers pay their own taxes, insurance and benefits. Some may choose to carry gig insurance in the form of professional liability coverage, which offers protection if they're sued due to their work.
Freelance marketplace workers
A freelance marketplace worker finds work through an online freelance marketplace platform like Freelancer.com or Upwork. With this arrangement, companies that need the products and services of an independent contractor can find a pool of available talent and offer projects for a fee that they set. Depending on the arrangement, freelance marketplace workers usually pay their own taxes, insurance and benefits.
Gig workers find work through a specialized platform parent company, such as Uber or DoorDash. While they're self-employed, they perform jobs assigned to them through the platform. Gig workers operate independently to earn money, but they don't set rates or run their own businesses. They're responsible for paying their own taxes and benefits. Depending on the type of work, they may be required to have gig economy insurance as a condition for working with the platform.
A temporary worker is someone hired to perform a task for a specific timeframe. This arrangement is typically facilitated by a temporary staffing agency, which recruits workers and matches them with opportunities. Temporary workers can be considered employees of the staffing agency, which withholds taxes for them and may even offer insurance and benefits.
What you need to know
The IRS puts most of these types of workers under the umbrella of independent contractors. An individual is considered an independent contractor if the company that hires them can only control the result of their work, not how they do it. This can create a gray area—especially with gig workers—and it's the subject of the PRO Act, a bill that would give some contractors an employee status.
If an employee is an independent contractor, companies aren't required to withhold taxes or provide benefits like insurance. However, they can make insurance for gig economy workers a requirement for work.
Currently, the IRS is strict about misclassifying workers because it could mean that a company benefits by not paying Social Security and Medicare taxes for them. Companies can incur penalties if they misclassify workers.
Talk with a trusted insurance agent who can help you navigate your hiring choices so you don't make a mistake that can cause negative financial implications. They can also provide guidance on any gig economy insurance that's recommended or needed. The best type of arrangement is one that's fair and protects your business as well as those you hire—whether they're employees or independent contractors.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.
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