I handled a recent case in which a veterinary practice received the following notice from its insurance carrier after a workers’ compensation payroll audit: “It was brought to our attention from the most recent audit that you have uninsured subcontractors. We require you to verify all subcontractors have the proper coverage in place with at least your coverage limits and obtain certificates of insurance. If you continue to use uninsured subcontractors, then we will have to take adverse action on this account.”
“Adverse action” should grab your attention anytime an insurer uses the phrase. Thankfully, the practice resolved the issues to the carrier’s satisfaction. The subcontractors were relief veterinarians and technicians working under a 1099 designation.
Defining 1099s
When you hire a 1099 subcontractor, you have an independent contractor performing work not as an employee but under the terms of an agreement. “1099” refers to IRS Form 1099-NEC (Nonemployee Compensation), on which you report payments to subcontractors. The workers are responsible for paying withholding and self-employment taxes directly to the IRS. They typically do not receive any of the fringe benefits you provide to W2 employees, like health insurance and, more importantly, workers’ compensation coverage.
Legally, 1099 contractors are:
- Independent: They control how, when and where they work, often using their own tools and methods.
- Self-employed: They manage their expenses and liabilities as individuals or businesses.
- Obligated: They work under a written or verbal agreement that specifies the scope of their work, the payment terms and other conditions.
I won’t dive into the contractual or tax issues of using 1099s, but I will review the insurance implications and how to protect your veterinary practice.
1099s in Veterinary Medicine
Does your practice bring in relief veterinarians, technicians or maybe a surgical specialist and pay them as 1099s? Insurance carriers take uninsured subcontractors very seriously. If a subcontractor working on your behalf is the cause of a claim — whether it involves general liability, workers’ compensation, professional liability or commercial auto — your carrier wants the subcontractor’s insurer to cover the claim. That is why you must verify that your subcontractor has active insurance policies. If no coverage exists, your practice’s insurer would have to pay out.
A subcontractor cottage industry has popped up as many veterinarians and technicians choose to do relief work as 1099s. Oftentimes, they are looking for a better work-life balance, so they set their schedules to work when and where they want.
Most insurance companies require that any business they cover collect a subcontractor’s proof of insurance. In the homebuilding world, for example, the general contractor hires independent subcontractors — framers, plumbers, electricians, concrete finishers, carpenters and flooring installers. Each of them must carry an insurance policy — or work for a company providing the coverage — and show a certificate of insurance.
Workers’ Compensation
The issue for the practice I mentioned at the start was that the hired 1099s didn’t have their own workers’ compensation insurance. Therefore, their wages were considered regular payroll under the practice’s workers’ compensation policy and were rightly flagged.
If your practice works with a placement firm, your relief help might be W2 employees. That means you don’t pay their workers’ comp premiums because the agency does. However, if they are not W2 employees at the placement firm, lack a personal workers’ compensation policy and don’t provide a certificate of insurance, whatever you pay them is captured as payroll during your carrier’s annual audit. In other words, your carrier isn’t happy when you underpay your yearly premiums.
Adequately explaining to your insurance company how and why you hired those subcontractors will lower the likelihood of getting a scary “adverse action” email. In the case above, once the insurance underwriter understood the nature of the relief relationship, it approved the practice’s use of 1099s and permitted covering them under the practice’s workers’ compensation policy.
The Proof You Want
A certificate of insurance is a document showing proof of coverage. It lists the policy details, limits, effective dates and carrier contact information.
Remember that certificates of insurance are for informational purposes only. They don’t promise coverage. Your carrier wants you to collect a copy from any subcontractor or independent contractor you hire to serve as confirmation in the event of a claim.
Relief workers are here to stay in the veterinary industry. Obtaining every relief worker’s certificate of insurance will help prevent an adverse action from being taken by your workers’ compensation carrier.