Simply hiring an employee as a 1099 employee, rather than a W2 employee, does not mean you are not responsible for workers' compensation insurance. If that were the case, every employer would hire employees as 1099 employees and save the money they would otherwise have to spend on workers' compensation insurance.
For workers' compensation insurance purposes, the term "employee," generally includes full-time employees, day laborers, leased employees, borrowed employees, part-time employees, unpaid volunteers (including family members) and most subcontractors (there are specific exclusions under indentifying who is an independent contractor).
Many factors are used to decide whether an individual is an employee under the Workers' Compensation Law. If a business meets any of the criteria listed below, and the individual hired does not meet the criteria listed under independent contractors, or the services rendered are not specifically exempted as employment under the WCL, then that business must obtain a workers' compensation insurance policy.
Right to Control - A person or organization controlling the manner in which the work is to be performed indicates that the task is being performed by an employee.
Method of Payment - A business paying cash to an individual for services usually indicates that the individual is an employee. Payment for performance of the task as a whole may indicate the task is being done by an independent contractor.
Furnishing Equipment/Materials - A business providing the equipment and/or materials used by people in performing the work tends to indicate an employer-employee relationship.
Right to Hire/Fire - A business retaining the authority to hire and fire the individuals performing the work indicate an employee is performing the work. An independent contractor retains a degree of control over the time when the work is to be accomplished and is not subject to be discharged by the hiring entity because of the method he chooses to use in performing the work. Naturally, an independent contractor's services may be terminated if the services rendered do not meet contractual requirements.
All factors may be considered and no one factor alone determines whether a person will be considered an employee under Workers' Compensation Law.
Note: A workers' compensation law judge determines whether a person is considered an employee at a hearing following a work related accident or illness.