Paying a worker on a 1099 does not settle the workers comp question in South Dakota. The state presumes a worker is your employee until you can prove they are truly independent, using a common-law control test rather than the label on a tax form. So a misclassified contractor can still leave you exposed, even though coverage itself is optional in South Dakota.
Who this is for: South Dakota owners who use 1099 contractors, subcontractors, or gig workers and want to know when they still carry the risk.
The short version
- South Dakota presumes a worker is an employee until independence is proven, so a 1099 alone does not remove your exposure.
- The test is about control, not paperwork: who directs the work, sets the hours, and provides the tools.
- Coverage is optional in the state, but a misclassified worker who is hurt can still sue you or elect double benefits.
- A signed, notarized exempt-status form helps, but no one is required to accept it in place of a real policy.
- If you hire subcontractors, an uninsured sub's hurt worker can be pushed up to you as the higher contractor.
Why the 1099 label is not enough
South Dakota decides who is an employee by looking at the real relationship, not the tax form. The core question is control: does the hiring business direct how the work is done, set the schedule, and supply the tools, or does the worker run their own operation and simply deliver a result? A state Supreme Court case involving a logging cutter made the point plainly, holding that a signed independent-contractor agreement did not stop the worker from being an employee once the facts showed control. Because the law starts by presuming employee status, the burden is on you to show independence, not on the worker to disprove it.
Employee or independent contractor?
| Factor | Points to employee | Points to contractor |
|---|---|---|
| Control of the work | You direct how and when it is done | They control their own methods and schedule |
| Tools and equipment | You provide them | They bring their own |
| How they are paid | By the hour or a steady wage | By the job or the result |
| Whose business it is | Part of your usual trade | A separate, established business |
| Written exempt-status form | None on file | Signed, notarized affidavit provided |
How to protect yourself
Start by classifying honestly against the control test, because a helper who works under your direction is an employee no matter what the invoice says. For genuine subcontractors, collect proof of coverage showing they carry their own South Dakota workers comp, or a signed, notarized exempt-status form. Keep in mind two limits: the exempt-status form only creates a rebuttable presumption, and no general contractor is required to accept it instead of a policy. And under South Dakota's contractor chain, if a sub is uninsured and its worker is hurt on your job, that worker's benefits can be pushed up to you.
A trucking example
Illustrative, not a quote. A Sioux Falls distributor uses three owner-operator drivers it pays on a 1099. Two of them run their own authority, maintain their own trucks, and haul for several companies, which points to independent contractor status, and the distributor keeps signed exempt-status forms and proof of their coverage. The third driver hauls only for the distributor, on its schedule and under its direction, which looks like employment, so the distributor adds that driver to its policy rather than risk a doubled benefit claim after a crash. See our workers comp for trucking page.
Real questions South Dakota owners ask
If my workers are 1099, do I still need workers comp in South Dakota?
Maybe. South Dakota presumes a worker is an employee until you prove independence under a control test, so the 1099 label alone does not remove your exposure. Coverage is optional, but a misclassified worker who is hurt can still sue you or elect double benefits.
How does South Dakota decide if someone is really a contractor?
It looks at control, not paperwork. Who directs the work, sets the hours, and provides the tools? A worker who runs their own established business and delivers a result is likely a contractor; one who works under your direction is likely an employee.
A worker signed an independent contractor agreement. Is that enough?
No. South Dakota courts have held that a signed agreement does not settle it if the facts show you control the work. The written contract is one factor, but the real relationship decides, and the law starts by presuming employee status.
What is an exempt-status form, and does it protect me?
It is a signed, notarized form on which a contractor declares they are not an employee, and it creates a rebuttable presumption that they are exempt. It helps, but no general contractor is required to accept it instead of a real policy, and it can be challenged by the facts.
Can I be responsible for a subcontractor's injured worker?
Yes. Under South Dakota's contractor chain, if a subcontractor is uninsured and its worker is hurt on a job under your control, that worker's benefits can be pushed up to you as the higher contractor. Collect proof of coverage from every sub.
What should I collect from a genuine subcontractor?
Ask for proof that they carry their own South Dakota workers comp, usually a certificate of insurance, or a signed and notarized exempt-status form. Keeping those on file is your best defense if a claim or an audit later questions the relationship.
What is the risk if I get the classification wrong?
If you treat an employee as a 1099 and they are hurt, you have no coverage for them, so they can sue you for damages or collect double workers comp. You may also face payroll and tax consequences, so it pays to classify correctly up front.
Why South Dakota owners choose Morrow
- We shop the right market for you. South Dakota workers comp is optional, so Morrow first helps you decide whether to carry it, then places coverage fast through the state's competitive private market of authorized carriers, since South Dakota has no state fund and no monopolistic fund of any kind.
- We catch pricing mistakes. Your price depends heavily on the category your work falls into for pricing (the class code). Put people in the wrong category and you overpay for years. We review your payroll and classifications before you buy.
- Proof of coverage, fast. Need a certificate (proof of coverage) for a general contractor or a landlord before Monday? We turn those around the same business day for most carriers.
- We help lower the score that drives your price. Insurers give you a score based on your past claims that raises or lowers your cost (the experience modification rate). We review it each year, flag errors, and connect you with return-to-work and safety resources that bring it down.
- Real people when a claim happens. When someone gets hurt, we stay involved through the life of the claim, not just at renewal.
Related South Dakota guides
Every South Dakota business is set up a little differently. These companion guides answer the same question for other situations, plus the national explainers behind the terms used here.
- Business insurance in South Dakota (start here)
- Workers comp: the owner's overview
- I own an LLC: do I need workers comp?
- I'm a sole proprietor: do I need workers comp?
- I own a corporation (C-corp or S-corp): do I need it?
- We're a partnership: do we need workers comp?
- We're a nonprofit: do we need workers comp?
- Only part-time or seasonal staff: do I need it?
- I only employ family: do I need workers comp?
- Remote or out-of-state staff: do I need coverage?
- What happens if I don't carry workers comp?
- How much does workers comp cost?
- How do I get workers comp (even if turned down)?
- What insurance do I need for a contractor license?
- Workers compensation insurance, explained
- What workers comp costs (national guide)
- Do I need workers comp for 1099 contractors?
- What is a ghost workers comp policy?
- South Dakota trucking workers comp
This guide is general information, not legal advice. South Dakota rules and penalty amounts can change, so verify current requirements with South Dakota Department of Labor and Regulation, Division of Labor and Management or a licensed advisor before you rely on them. Last updated: July 2026.