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So you hired an independent contractor?
In reviewing the insurance program of a prospective client, I found that none of the people who were performing service at his direction and control were being treated as employees. His company determined them all to be “independent contractors”. As a result, the owner did not find it necessary to carry a Workers Compensation policy. I believe this was a huge gamble on his part and I requested an opportunity to speak with him in depth on this issue.
In our meeting, I suggested that he was taking a big risk without protecting himself. It is possible that some of these workers who provide service for his company are, in fact, independent contractors, but it is not likely that everyone falls into that category. If his company carries a Work Comp policy on the office staff, then in most states, he would have insurance to provide a defense if one of the so called “independent contractors” becomes injured and files a claim against the company. I emphasized that even though he has written contracts with these individuals, this does NOT relieve him of the responsibility under most state laws for Work Comp benefits (not to mention the EEOC rules that provide other recourse to these injured workers.) If this business owner has no Work Comp policy then he may be directly responsible for the costs of defense, medical care and permanent disability, that result from a work injury. In addition, the company (or individual owner) is subject to fines and penalties for the failure to carry this coverage.
According to labor attorney Christine V. Walters, the EEOC applies specific tests to determine whether workers are employees or independent contractors:
"According to the EEOC, the indicators that a worker is an employee, not an independent contractor, are:
· The work does not require a high level of skill or expertise.
· The agency or employer, not the worker, furnishes the tools, materials,
and equipment.
· The work is performed on the premises of the agency or employer.
· The worker and the agency or employer have a continuing relationship.
· The agency or employer has the right to assign additional projects to the worker.
· The agency or employer sets the hours of work and the length of the job.
· The worker is paid by the hour, week, or month instead of a set fee for performing a particular job.
· The worker has no role in hiring and paying assistants.
· The work is part of the regular business of the employer.
· The worker does not have a distinct occupation or business of his or her own.
· The agency or employer provides the worker with benefits such as insurance, leave, or workers' compensation.
· The agency or employer withholds federal, state, or social security taxes on behalf of the worker or should do so.
· The agency or employer can discharge the worker.
· The worker and either the agency or employer believe they are creating an employer/employee relationship.
Of course, not all of these indicators or tests must be met to clasify this worker as an employee. But if several of these indicators are positive for an employer/employee relationship, the company is likely to loose this battle and be subject to all the regular work comp costs in addition to numerous fines and penalties.
If you are in doubt about how this scenerio applies to your business, you should seek advice from your broker, your attorney and/or a claims expert. Let us know if you have further questions about "Employees vs. Subcontractors".