Imagine it is summer (and not the rainy, cloudy, sad second-spring kind)! Sunshine abounds, flowers bloom, and your home runneth over with….pests. Ants, spiders, mice, common house flies, not-so-common rodents, maybe even a nice family of yellow jackets have burrowed into your back yard.
As a homeowner-in-distress, you may seek the rescue of a pest control knight, gallantly sweeping through house and home detecting, attracting, and eliminating every and any unwanted guest. They will leave no corner unchecked, no rock unturned, they will return monthly, weekly, or even daily, until they’ve obliterated the violating house guests!
So, what do regulatory agencies have in common with pest control? The answer, of course, is that they’re both out to capture or eliminate any and every violator – with no mercy. If you’re now saying: But wait! I invited the gallant knight into my home, no such offer was made to any spying regulator…you are wrong, since most agencies are empowered by law to conduct audits and investigations with or without employer consent. Pesty violators beware.
You may remember that in my last post I said that misclassifying an employee as an independent contractor is a big deal with potentially far-reaching consequences. In this post we’ll focus on the work comp implications of misclassification.
As I mentioned in my previous post, the various regulatory agencies have stated their keen interest in rooting out misclassified independent contractors, so it is conceivable that you could be randomly selected for an audit, although the odds of this happening are still relatively slight.
However, in the context of work comp, there are two much more likely scenarios that could uncover a misclassification:
From an auditing perspective, insurance carriers generally conduct audits of their clients on an annual basis to determine whether or not they’ve been billed accurately. The rest of this post will focus on the scenario of an independent contractor getting injured.
If the experiences of our clients are any indicator, it’s not uncommon for “independent contractors” who are injured while working to try to submit a claim to the client’s work comp carrier.
For example, let’s say I am working for you as an independent contractor, and we’ve followed all of the documentary formalities (I’ve signed a contract stating that I’m not an employee and am not eligible for work comp, you don’t withhold anything from my pay and issue me a 1099 at year’s end, etc.). However, one day in your workplace I herniate several disks lifting something, thereby needing expensive surgery and several months of recovery during which I can’t work.
So why would I try to file a work comp claim? There are several reasons I might do so. For instance, I almost certainly won’t have secured my own work comp policy. And if I don’t have any separate health insurance, I may believe that I have nowhere else to turn.
Or, I might have health insurance, but the insurance carrier is denying the claim because it occurred in connection with work, and even if my medical claim is being covered by my health insurance, I might have a high deductible to meet. It’s also likely that I won’t have a short-term disability policy, so I won’t have any way to replace my lost income during my recuperation unless I get work comp.
And, interestingly, the facts that we have a signed agreement between us and that you’ve issued me a 1099 may have no impact at all on whether I’m entitled to work comp.
While an examination of any signed agreements will be part of the analysis as to independent contractor status, it is only one of the many things that the law takes into consideration.
Wisconsin and Minnesota have statutes that set forth nearly identical and very specific 9-factor tests for determining independent contractor status (Illinois doesn’t have a specific statutory definition, but their courts apply a similar analysis). Here’s Minnesota’s definition:
An individual is an independent contractor and not an employee of the person for whom the individual is performing services in the course of the person's trade, business, profession, or occupation only if the individual:
As you can see, the test is a lot more rigorous than simply having someone sign an independent contractor agreement, and it’s worth noting that each of these nine steps has to be met in order to pass the test.
Think about the independent contractors with whom you’ve worked (or may be working). How confident are you that they would easily get past each of these hurdles?
While it’s true that you’re not likely to go to jail over a misclassification, getting it wrong can still be a big deal. Not only will you take a hit to your work comp mod from the claim itself (which might have been preventable if you’d treated me like an employee and provided training on proper lifting techniques), but your insurance company might choose to non-renew your policy.
In turn, nonrenewal can make it more difficult to get insurance with other carriers, which, even if you secure coverage, may well be more expensive than it would have been if you’d been able to renew with your current insurance company.
So, yes, you probably should care. Stay tuned for the next post in this riveting series, in which I’ll be exploring the wage and hour implications of misclassification. Ooo, I can hardly wait myself to see what I’m going to say about that one…
For more information, contact us.
James provides guidance to employers on a variety of topics with a focus on employment, risk management and liability issues.
James provides guidance to employers on a variety of topics with a focus on employment, risk management and liability issues. In addition to working directly with employers, he regularly conducts in-depth training through webinars, at client sites, and through the University of Minnesota’s Continuing Ed program. He previously was a plaintiff’s attorney and brings that perspective into his advice to employers. James received his law degree from the University of Minnesota and his BA from Washington University in St. Louis.
Risk management and human resources are traditionally two different job functions, and the people in these areas have rarely crossed paths — but that is changing.
Why are these people starting to work together more frequently?
On May 11, 2014, the governor of Minnesota signed the Women’s Economic Security Act (WESA), a bill that will require Minnesota employers to make dramatic changes to their employment policies and practices.
While WESA directly impacts employers who conduct business in Minnesota, the changes follow plans by federal and local governments to expand legal protections for women and other employees. For this reason, employers in other jurisdictions should pay close attention to these national and state law trends.
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