If you are purchasing a group plan for your small business, you’re going to have to report how many employees you have. While this may seem like a straightforward number, you may find that people you thought were employees actually are not (at least in the eyes of health insurance providers). The reverse can also be true – someone you didn’t think of as an employee could be a common law employee.

This concise article will describe what a common law employee is, how it differs from an independent contractor, and what kind of small business health insurance is available for them.  Continue reading to find out everything you need to know about common law employees and health insurance right here.

Common law employee definition

So who does count as a common law employee? Well, according to the Internal Revenue Service (IRS), if you (the business owner) can control what work will be done and how the work is performed, then the person carrying out the task may be classified as a common law employee.  This can be true even if the individual performing those services has minimal supervision.

This definition might help rule out some contracted workers; if you are only in control of the product they produce, and not how exactly the process is executed, then they might not be considered your common law employees.

The term “common law employee” is used by some of the insurance companies whose plans we offer at eHealth, but you may see other terms used to describe what constitutes an employee when it comes to health insurance. Knowing the definition of an employee from a health insurance standpoint is helpful, so that no matter how it is phrased, you understand the meaning.

A common law employee cannot be yourself, or a spouse—so if you have a business that is just you and your spouse, then you will typically not qualify for a group plan for small business health insurance.

What are the differences between common law employees and independent contractors?

As a business owner, it’s crucial to know the differences between common law employees and independent contractors. Common law employees differ from independent contractors in that contractors have more control over their own work.  Rather than having a complete hands-on approach to employee management, the contractors are self-employed and do not constantly have to answer to the business management team. 

Common law employees, on the other hand, have a more structured schedule for their work. With a common law employee, the business owner has more say over how their work is executed.

How to determine if a worker is a common law employee or an independent contractor?

It’s crucial for small business owners to understand what a common law employee is for health insurance purposes. The type of health insurance available to common law employees differs from that of independent contractors. 

To determine whether a worker is a common law employee or independent contractor, business owners can utilize the IRS common law test. In this test that the IRS uses, the employer reviews various factors that fall into three categories: Type of relationship, behavioral, and financial. Different employee benefits will be provided in accordance with what these factors divulge.

Once you establish these facts, you will be ready to construct a proper health insurance plan for your common law employees.

What do I need in terms of common law employees to qualify for a small business group plan?

We’ve established that a spouse and a small business owner alone will generally not make the cut to count as employees for small business insurance. So what kind of employees, and how many, do qualify your small business for a group plan?

In most cases, you need at least one employee (who can often be a common law employee) to get a small business health insurance plan. Keep in mind that plans from different companies could have different standards, so make sure to pay attention to details when looking at plans.  Here are three details about your employee(s) that generally need to be true in order for your small business to get a group plan:

• You need at least one common law employee (not yourself or a spouse)
• This employee needs to be working full-time (at least 30 hours per week)
• At least one employee opting to enroll in the group plan

These are just some basic qualifications of what you need to qualify for a group plan. The main takeaway is that you typically need at least one common law employee who will be in your group plan, so make sure you have a common law employee before taking the time to search for a group plan.

If you’ve realized that you do not employ at least one common law employee, you still have a wide range of excellent options for individual and family health insurance and supplementary health insurance products from eHealth.

Keep in mind that plans and companies might use different terminology and rules about employees, and these rules may not apply to every plan on private or government markets.

A few extra details to keep in mind about common law employees

When totaling the sum of how many full-time common law employees you have, depending on the plan you wish to enroll in, you might be able to combine the hours of part-time employees to count for one or more full-time employees. Essentially, this would mean you can add up all the hours that your part-time employees work in a week, and then divide it by 30 (which is a full-time workweek).

Be careful when deciding who is an employee (or a common law employee) and who is not. You can read about independent contractor vs employee to understand the difference between those two types of workers. If you give someone a W-2 form at the end of the year, you can generally assume that person is probably classified as an employee.  However, even contractors who do not receive a W-2 could be classified as an employee.

But like a lot of rules of thumb, this isn’t going to be the definitive answer, so check with your legal advisor, tax specialist, or accountant in order to make sure you are correct in assuming someone is a “common law employee” or that they meet any other employee definition you encounter.

Finding a suitable health insurance plan for your small business

If you need help finding a suitable health insurance plan for your small business, whether that’s a group plan or dental and vision insurance, you can use eHealth. eHealth will give you access to just the right insurance provider and explain every step of the process to you.  With over 1200 small business health insurance plans to choose from, it can be mind-boggling at times.  However, eHealth can help you find the perfect plan without any trouble. Call today and see what eHealth can do for you.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.