During the conversion to remote work during the COVID-19 pandemic, many small businesses might have dropped workers’ compensation insurance. Working remotely didn’t preclude the requirement to carry workers’ comp, but many employers stopped the coverage as a cost-saving mechanism. As more workers return to the office or job site, you should think about resuming this mandatory insurance coverage.

According to the Colorado Department of Labor and Employment (CDLE): “If your business needs workers’ compensation insurance and does not have it, you will be subject to fines of up to $500 per day and possibly having your business shut down. If someone gets hurt on the job, you will also have to pay the entire cost of the claim yourself, as well as a 50 percent increase in benefits for failing to carry insurance.”

The requirement to carry workers’ comp applies to all Colorado employers. With two notable exceptions, you must cover anyone who gets paid to work for you, regardless of whether the work is part-time, full-time or done by family members.

The two exceptions? Officers of corporations and members of LLCs and subcontractors who are true independent contractors.

What happens if you’re an officer of your corporation or member of your LLC? You could choose to skip workers’ comp coverage — but only for yourself. Each member of the LLC or officer of the corporation must choose or reject workers’ comp for themselves. If you’re the sole employee, you must fill out and file the form on the CDLE division of insurance website at
https://codwc.app.box.com/v/WC43-Coverage-Rejection-LLC.

If a person is a true subcontractor or independent contractor, you aren’t their employer — although you might consult an attorney or tax advisor to make sure. You don’t have to provide workers’ comp for subcontractors and independent contractors. However, this is an area fraught with land mines and legal consequences. At a minimum, you need to ensure these workers are either officers or members of their own corporations or LLCs or covered elsewhere. In either case, you need written proof of the opt out for officers and members or proof of coverage.

While you’re verifying the status of your subcontractors and independent contractors, you might want to complete an IRS Form SS-8 — https://www.irs.gov/forms-pubs/about-form-ss-8. If the subcontractor or independent contractor doesn’t meet all the criteria on the form, they’re likely not an independent contractor, and you must provide workers’ comp.

To be doubly sure of their status, the IRS website offers this option: Firms and workers can file a Form SS-8 to request a determination of the status of a worker for purposes of federal employment taxes and income tax withholding. Filing a Form SS-8 means you or the firm ask the IRS to establish if the services you provide to the firm are those of an employee or independent contractor.

Choosing to opt out of workers’ comp comes with potential legal, tax and insurance consequences. Always consult the appropriate advisors before making that election.