How to Get Large Group Health Insurance Plans for Contractor Business Employees

If you, as an employer, have 1099 employees on your staff from time to time, you may be wondering whether you are required to provide health insurance to them. While you are not legally obligated to offer health plans to these workers, you can still choose to.

What is a 1099 Employee?

The phrase “1099 employee” generally describes people that act as independent contractors or are “self-employed.” According to the Internal Revenue Service (IRS), these workers are not deemed true employees. There are also some states that do not consider 1099 employees actual employees of a company. Some widely known examples include building subcontractors, doctors in hospitals, and freelancers in various industries.

Since these workers are not recognized as employees, they aren’t paid a salary or wages in the traditional sense. Instead, 1099 workers are paid based on your agreement with them. This also means that employers don’t have to withhold income taxes, pay unemployment taxes, or withhold and pay Medicare and Social Security taxes.

When tax season comes around, you issue a 1099-MISC to all the independent contractors that you’ve paid over $600 to that year. Then, they will take care of their own self-employment taxes.

Independent Contractors (Self-Employed) vs. Employees

One of the key differences between actual employees and independent contractors, (or, 1099 employees, self-employed individuals etc.) is the way their annual income is reported. With standard employees, income is reported on a W-2, while independent contractors have their yearly income reported on a 1099 – hence the term “1099 employee”.

While this is the most prevalent distinction, it’s not the only one. Both the IRS and a number of states have distinct rules that categorize workers as employees or independent contractors. Some of these rules are as follows:

  • The job requirements established by the employer.
  • The level of control the employer legally has over how the worker performs tasks.
  • How much training or instruction the worker gets from the employer.\

With these rules in mind, here is a general overview of how to distinguish between a full-time employee and a contracted worker:

  • A full-time employee is a functioning member of the business, with the employer reporting their taxes and giving them direct supervision regarding how they perform their work. They typically have set hours, limited independence, and more structure than independent contractors. As a result, they tend to receive more benefits, and work for longer expanses of time.
  • An independent contractor, on the other hand, performs their work disjointedly from the business that hires them. Therefore, this self-employed individual is responsible for paying their own taxes on the money that they receive from the business, or their client. They generally enjoy more flexibility in regards to their schedule, accepting tasks, and approaches for completing the job. Though, they usually don’t get the same benefits as full-time employees, and must provide their own equipment for jobs.

Oftentimes, contracted employees are cheaper for a business, as they are not required to extend group health insurance coverage to them. However, this does not mean that the employer shouldn’t.

Do Employers Have to Provide Health Insurance to Contracted Employees?

Legally, employers are not required to provide the same benefits to their 1099 contractors as they do to their full-time employees. Though, there are regulations in place that may allow you to offer them health insurance, if you desire. Depending on the health insurance company you choose and the state you live in, you may be able to extend your large group health insurance plan to independent contractors as well.

However, keep in mind that in states like California, a 1099 worker is generally not eligible for employer-sponsored coverage. In this case, there options are to apply for health insurance either through a family policy or private individual plan.

If the employer can offer coverage to their independent contractors and choose to do so, there are some rules that both parties must adhere to:

  • The independent contractor may have to proclaim employer contributions as taxable income to the benefits.
  • Employers can offer 1099 employees access to the same group health insurance plan as their full-time employees, whether the contractor or employer is responsible for the premiums.
  • Employers are not obligated to pay any percentage of the contractor’s premiums.
  • If the independent contractor pays their own premiums, they may qualify for a deduction from their income on their taxes.

How to Get Large Group Health Insurance Plans for Contracted Employees

Although most companies that hire contracted employees do not offer them benefits, there is a small amount of companies that do. Generally speaking, if your company meets some chief requirements, you will probably be eligible to extend your large group health insurance to your contracted employees as well. That said, here’s what you need to know:

  • To be eligible for a business group health plan, you need to prove that your business is legitimate and has employees. For health insurance purposes, there are some instances where contracted workers may qualify as “actual employees”. Though, this varies based on the state where you live and work, and any distinct requirements of the insurance carrier and the plan you select.
  • In order to qualify for a group health plan, you typically need to have at least one employee on your payroll.
  • When you choose to offer benefits, you usually need to offer them equally to all the pertinent parties. This means that if you offer health insurance to one full-time employee, you need to offer it to all full-time employees that qualify.
  • Employers must contribute in some manner to their employees’ monthly premiums. Though, this gets a little bit more complicated when it comes to contracted employees.

It’s important to understand that there is no one-size-fits-all plan when it comes to group business health insurance. As no two businesses and no two employees are the same, no two coverage plans are the same. There are so many variables at play, including requirements for group health coverage which vary from state to state, and insurance carrier to insurance carrier.

For this reason, we always advise working with a health insurance consultant such as to find the plan that works best for you, your business, your full-time workers, and even your contracted employees.

Should You Provide Health Insurance Coverage to Contracted Employees?

Although not required, if you do choose to offer group health insurance to contracted employees, you may enjoy some of the following advantages:

  • A larger concentration of younger 1099 workers or a larger group overall can result in cheaper premiums for both you and your employees.
  • Providing benefits to contracted workers can help attract talent and retain them.
  • Helps keep your entire workforce healthy and maximizes productivity.
  • If your business only consists of 1099 employees (aside from yourself and possibly a spouse) you may need the additional headcount to be eligible for group health insurance.

Overall, self-employed individuals tend to have a more challenging time finding health insurance coverage than full-time employees. Offering a plan that they can buy or covering a health plan for them can give them access to coverage that they would otherwise not have.