Many businesses in New York turn to independent contractors to help with short-term projects without the burden of hiring permanent employees. In fact, the number of freelancers is growing at a rapid pace. This could mean serious legal issues for companies without workers' compensation insurance in place.
Many companies erroneously believe that because they consider a person to be a freelancer that a worker classified as such does not need to be covered by workers' comp insurance. However, the employer could still be on the hook should the freelancer be involved in an accident and suffer workplace injuries. Therefore, it's a good idea for companies to add freelancers to their policies. If they strongly feel as though freelancers should not be covered, then this should be explicitly stated in the contract.
Each state has its own workers' compensation rules and regulations, so companies should first become familiar with the laws in their state. Next, they should take an IRS test to see if their workers are actually freelancers or employees. Employees generally have a more rigid work schedule than freelancers. If a person is classified as an employee, then that person needs to not only be covered by workers' comp, but also needs to be put on the company payroll.
Employers have a duty to provide workers' compensation for employees in accordance with state law. Those who fail to do so could be fined or even jailed. In addition, the employee could sue the employer, which could result in hefty legal fees and penalties. In addition, employers could be sued for retaliation - that is, if they terminate employees who report injuries in the workplace.
Source: Businessweek, "Should Freelancers Get Workers' Comp Insurance?," Karen E. Klein, June 13, 2014