Sub-contractor or Employee Insurance

Sub-contractor or Employee Insurance
Sub-contractor or Employee Insurance

If you are the type of business owner that wants things candy coated then this article is not for you.  If you want the bottom line and get it to you straight, then this article might mean something to you.

Many amusement operators, and by that classification I include everything from Inflatables to rock walls and all mechanical devices to paintball fields, have people working for them and classify them as sub-contractors other than employees in hopes to avoid paying taxes and workers compensation.

Well now, get your seat belts on and tightened because you are about to become enlightened!

We will be discussing a couple of issues here.  First about what the IRS has to say about qualifying a sub-contractor.  Second, what your general liability policy has to say about a sub-contractor.

  1. Is this person a sub-contractor?The IRS says that there are several issues to review and they are:
    1. Who is an Independent Contractor?
      A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

CAUTION: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

    1. Who is an Employee?
      A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.
  1. Are the sub-contractors actions covered under your general liability policy?
    1. First we go to the standard Commercial General Liability policy and look under who is an “insured”. In English, who does this policy cover and who will we defend. The policy states that it will defend the “owners, officers, employees, and volunteers of the named company, corporation. There is NO coverage for sub-contractors. As a matter of fact it is usual practice that there is an endorsement or wording in the policy that states that sub-contractors must be insured with limits equal to or in excess of your policy.What does that mean for the Paintball Field/store operator? If you hire a sub-contractor to work at your store, pro shop, field as a ref or sales person, then the “act of refereeing, gun repair, air fills, lens replacement etc.” by that person is not insured under your policy. So, if the referee does not pay attention to the game, is texting on his phone during play, and misses the fact that someone has lifted their mask, you might not have defense coverage in case of a law suit!!!

Now, do you 1099 this person? Do you claim you have no employees? Do you have this person sign documents stating that they are sub-contractors? If you answered yes to any of these questions you might be in danger of not having your business covered even though you are paying for insurance due to a misunderstanding on your part.

So what do you do to have coverage for you and your business? Put them on as employees, see if your state requires that they be covered by workers compensation, and do it correctly. Otherwise, you are paying a lot of money for liability insurance that quite possibly would not be any good in case of an injury.

Ok, let’s say that this person really is a sub-contractor. That means that they have their own business license, they have their own commercial general liability policy and they have named your company as additional insured, and they have their own commercial auto policy and have named you as additional insured. Ahh, what the heck is an additional insured? That is another article to read!

Who is this sub-contractor working for? Himself? Did he get paid for the work hours at your paintball field or store by you? (Who is the check made out to? A business name or their personal name?) The name the check was written out to will be included in the lawsuit, you can bet on it!

Ok we have developed a few areas for you to review your own business models by. Please review your current insurance coverage’s with an agent that specializes in insuring your type of business. Not all insurance agents are the same nor do they have knowledge of the paintball business. Also check with your attorney and your accountant and to make real sure contact the Department of Labor and the IRS. For additional answers you may contact us directly or view other articles at

Larry Cossio has been a licensed insurance broker since 1979 and has been insuring entertainment risks nationwide since 1998. You may contact him at or his office at 864-688-0121. (10.06.09)

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