Workers compensation is designed to ensure that employees injured or disabled while on the job are properly compensated, negating the need for related lawsuits. It also provides benefits for dependents of workers killed by work-related accidents or illness. Some laws also protect employers by limiting the amount an injured employee can recover, and co-workers by eliminating their liability in most accidents.

Bob Brown just opened a self-storage site. He manages the office and has four people who maintain the facility and grounds. When he purchased his business insurance, Bob told his agent he didnt need workers-compensation coverage because his people are not employees but independent contractors.

Is there a problem in this scenario? Possibly. Workers-compensation laws vary by state, and most states have some form of statute regarding coverage. Facilities that meet certain requirements must provide workers compensation for all employees or face fines and consequences if they do not. The question comes in determining who qualifies as an employee.

The Employee

According to law, an employee is someone hired to perform services under the direction and control of another person or company, known as the employer. Since each state has its own definition to explain what constitutes an employer, Bob must determine the exact relationship his business has with hired help. A rule of thumb is that an employer is any person or entity who gives direction to and exercises control over a worker.

The Independent Contractor

Because workers compensation is intended only to cover employees, it is important to define the difference between an employee and an independent contractor. An independent contractor makes an agreement with a person to provide a service but remains in control of the work performed. Services are bound by written agreement.

Some of the benefits to hiring an independent contractor is you dont have to withhold federal, state and Social Security taxes or pay unemployment or workers-compensation insurance. In fact, storage owners dont have to offer much of anything to independent contractors, except that for which they have agreed by contract.

The Subcontractor

When you hire a licensed contractor or vendor, you assume the work and materials will be of high quality and the workers involved will be competent. In most cases, this is true; however, misfortune can happen to even the most reputable company. Accidents that result in property damage or injury to tenants, employees or the general public are known to happen. Hiring contractors that have proper insurance coverage is imperative to protect your business.

The best way to brace your business against vendor-liability exposure is to take appropriate measures when hiring. Seek out reputable companies that are licensed, bonded and insured. Get references from past clients, and request a certificate of general-liability and workers-compensation insurance.

A certificate of insurance is evidence that the vendor is insured by a financially stable company and carries adequate coverage for the service being performed. It should contain information on the insurer, insurance agency, types of coverage, policy numbers, effective dates, limits, certificate holders and any special provisions. Confirm that the limits of the vendors policy are equal if not greater than your facilitys limits and the policy effective dates are current.

Keep certificates of insurance on file during and after project completion. This will be imperative if an incident occurs or other complication arises. For example, if you determine a roofing contractor used defective materials and a roof-related incident causes damage to tenants property, a certificate of insurance from the vendor will release you from liability.

When hiring employees, follow your states statutes and purchase adequate workers-compensation coverage to protect your business from staff-related claims involving injury or illness. When hiring licensed independent contractors or subcontractors, ensure they carry adequate insurance to reduce your liability in vendor-exposure claims.

Amy Brown is part of Universal Insurance Facilities Ltd., which offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information or to get a quick, no-obligation quote, call 800.844.2101; e-mail [email protected]; visit www.vpico.com/universal.