The Gig Economy is up and running with more independent contractors today than in many decades before. In May, the Department of Labor re-examined the definition of Self-Employed and revoked 86 FR 24303, regarding paying overtime to independent contractors.

The revocation also affirmed the definition of independent contractor / self-employed status, making it necessary that the contractor works with more than one client, and is not economically dependent on any one company for their survival.

Three more qualifying factors for an independent contractor may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:

  • The amount of skill required for the work.
  • The degree of permanence of the working relationship between the worker and the potential employer.
  • Whether the work is part of an integrated unit of production

Mike-Papa-300x300Mike Papa, MBC, CIC, senior vice president and director of underwriting at DII, provides perspective regarding the Workers’ Compensation impact of hiring independent contractors:

From an employer’s perspective, the term “employee” has different meanings.  That is, “employee” can mean different things in
-  employment law & inherent obligations (benefits)
-  taxation and withholding
-  Property & Casualty insurance

From a Property & Casualty standpoint, the rule of thumb has remained fairly consistent, with only slight variations by state. Often, it comes down to this: If a worker is hurt doing a task on your behalf, your WC will be required to pay if the worker does not have his/her own WC insurance – whether as an entity or an individual.

Additional considerations for employers:

    • A contractor can be considered an employee for Workers’ Comp, without being an considered an employee for taxation or benefits
    • It doesn’t matter how the worker is paid – whether it be W-2, 1099, or a case of beer or week at the beach condo
    • The WC carrier is going to look for that worker’s payroll (and charge for it) unless there is evidence of other WC insurance that would pay if he/she were hurt
    • The absence of WC can result in heavy fines (treble damages on the claim, and fines) and potentially worse
    • States are hard pressed for revenue and insurance fraud is a nasty allegation – costly and time consuming to defend

DII encourages business owners to be cautious about independent contractors. Take time to ensure that their work complies with federal and state definitions, and request proof of their own workers’ compensation insurance prior to beginning any engagement.

As your partner in risk mitigation, DII provides frequent legislative and policy updates on this blog. Check back frequently to stay informed or subscribe by email.


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