Employee or Independent Contractor? Avoiding Workers Compensation Problems

Employee or Independent ContractorWe have written about the topic of properly classifying employees in the past, but there is continued crack down by regulatory authorities and insurers about classifying workers properly with regard to NY workers compensation.  Are workers employees or independent contractors?

Under the New York Workers Compensation Board Rules most workers are classified as employees for rating and coverage purposes unless they are specifically exempted.  Employee will include day laborer, leased employees, borrowed employees, part times, and some sub-contractors, unless that sub-contractors has their own insurance or is exempted.

There are several factors which will determine whether a worker is an employee or an independent contractor for workers comp purposes; and many are similar to IRS guidelines including:

Right to control – how much control does the employer have over what work the worker is doing?  The greater the control, the more the worker is an employee.

Character of work is the same as the employer – If you own a restaurant and hire an electrician to fix some wiring in your restaurant, that electrician is clearly a sub-contractor and not included as an employee.  But if you own a yoga studio and you hire yoga instructors, those instructors are likely going to be classified as employees.

Method of Payment – it doesn’t matter whether you pay your workers on a 1099 or W-2.  Employees will tend to be paid hourly, daily or weekly.  Independent contractors are usually paid for the task they are hired for.

Furnishing Equipment & Materials – if the business provides materials and equipment for the worker to carry out their job, this indicates an employer-employee relationship.

Right to hire/fire – when a business retains the right or authority to hire and fire workers it tends to indicate that an employer-employee relationship exists.

Now, it is not always easy to determine for workers compensation purposes whether a worker is an employee or independent contractor, but understanding these factors should help guide you.

Here’s the rub on the whole deal.

If you exclude wages or fees paid to uninsured independent contractors in your business, you should be prepared to possibly pay the workers compensation charge for them on audit.  Especially if you do not have a solid methodology to demonstrate that they are truly independent contractors.  Ultimately your insurer will attempt to collect a charge on that “payroll” on audit.  You can dispute that charge, but the final arbiter on the decision will be the Comp Board or a Workers Compensation Law Judge.  In our opinion it is better to clear up this potential confusion before you start your policy or get to its audit so that you budget accordingly for it.  Having to pay a large additional premium at audit, within 20 days of its billing isn’t always easy, so knowing beforehand is probably a good idea.

If you’re unsure, it’s best to speak to agent or broker for advice, they should be able to guide you appropriately and to keep you “out of trouble”.  If that fails, please do contact us for a conversation.

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