Employee or Independent Contractor? Finding Out the Hard Way
by David Schneider, Esq.
Suppose you are a building contractor. Suppose further, you happen to be visiting one of your job sites when you see your roofer fall off the building and be seriously injured. I am sure you would be concerned for the safety of the injured party, want to do whatever you can to help, and somewhat shocked by the suddenness of the accident.
A shock of a different sort might set when you get a call from an insurance auditor who tells you that the workers' comp claim filed by the man you thought was a sub-contractor has resulted in an award finding him to be an employee of yours. Consequently, the auditor explains, the money you paid him during the period of your workers' comp insurance policy is being deemed salary and when that amount is multiplied by your premium rate you owe an additional $10,000 in premiums.
"But," you say, "I have a copy of a certificate he provided saying he was not an employee, and a written contract where he is identified as a sub-contractor."
"No buts about it," the auditor says. He explains that the judge found the injured man met the definition of an employee and, as such, nothing he signs can waive his right to workers’ comp benefits if injured.
"Those documents," the auditor tells you "aren’t worth the paper they’re written on."
The contractor I’ve posited above may be hypothetical, but his problem is real.
The question is, how does one know if the person being hired is an independent contractor for which there is no workers’ comp liability, or an employee for whom workers’ comp coverage must be provided?
This problem is not limited to the construction industry; I’ve seen trucking companies, loggers, flying services, and other businesses caught up in the issue of whether someone is, or is not, an employee.
To an extent, employers have brought this problem on themselves. Hearing records frequently document instances where employers have simply deemed employees to be independent contractors and told them they had to sign statements to that effect if they wanted to continue working. But other business owners have acted in good faith, like our pretend contractor, only to find themselves in a financial hole.
The many legal decisions on this topic are not much help. When deciding this issue, courts will run through a laundry list of factors to considering in determining the alleged employee’s status. Unfortunately, the factors which are cited as key in one case may be ignored in another. The only way to know for sure whether someone is an employee or an independent contractor is for them to get hurt on the job and file a workers’ comp claim. But I don’t think that is the way most people want to find out the answer.
My advice is to not hire a sub-contractor unless they have their own policy of workers’ compensation insurance. If that isn’t feasible, don’t hire someone without workers’ comp insurance, unless you’re sure they are a solo operation, with an established business persona, who does work for other people beside yourself. Otherwise, be prepared to have an unpleasant conversation with a claimant’s attorney, an insurance auditor, or both.
About the Author:
David L. Schneider is a mediator and legal advisor with the Arkansas Workers’ Compensation Commission. An attorney since 1983, Mr. Schneider was one of the first persons to be certified by the Arkansas Supreme Court as a civil mediator, and is also certified to mediate claims pending before the Arkansas appellate courts. Having been with the Commission since 1989, Mr. Schneider has been involved with all aspect of deciding workers’ compensation claims and frequently writes and speaks on workers’ compensation matters to employers, employees and claims professionals. He is now in his forth decade of dealing with workers’ compensation issues.