Most insurance carriers have strict rules about adding contract employees to a benefits plan. These types of employees don't meet the standard definition of an "employee" in an insurance policy.
There are three common types of contract employees:
Contract Employee: Is on their employer's payroll but have a short-term employment contract. For example, a consultant.
Self-employed Independent Contractor: Bills the employer for services through their own business. For example, a truck driver.
Incorporated Independent Contractor: Bills the employer for services through their own corporation. For example, a board member.
Why is adding contract employees to a benefits plan so complicated?
The definition of an "employee" in an insurance policy is: A person who is directly employed by the employer on a permanent and full-time basis.
Contract employees usually aren't permanent. Independent Contractors are self-employed and aren't directly employed by the employer.
Calculating salary-based benefits for Independent Contractors is difficult because they:
Aren't on the employer's payroll;
Don't receive a T4 tax statement.
Carriers solve for this by offering flat-based benefits. For example, they may offer a flat $100,000 Life benefit.
Contract employees usually aren't eligible for disability benefits. This is because, unlike regular employees, they have a known employment termination date (the end of their contract). Contractors can also earn extra income while on disability by billing for services through their business or corporation. This isn’t allowed and is difficult to monitor.
Carriers solve for this by either not allowing disability coverage for contract employees or by offering durational-based benefits. For example, they may offer Long-Term Disability (LTD) coverage for 2 years instead of to age 65.
Each carrier will have their own process and requirements for approving Contract employee requests. League will reach out to the carrier to request approvals.