Who is your employee?
Over the years, we have seen many situations where a client thought they had no liability for a worker, but were surprised to discover the worker was really considered their employee and the employee had a legal right to workers compensation benefits upon their injury from the client. Given the complex nature of employee/employer relationships, it is critical to appropriately assess your risk and secure the proper coverage. So, to answer that question of who is your employee, let’s dive into the 3 classes of workers who may perform work for you.
Independent Contractors – This is where there are only two parties involved. In this arrangement you typically have an owner who need work done and the independent contractor who is hired to perform the work for the owner. An example would be a homeowner who hires a mason to lay tile floors in their bathroom.
Subcontractors – This is when you have at least three parties involved. In this case, you would have the owner, the independent contractor and the subcontractor who is hired by the independent contractor. Here the independent contractor becomes a general contractor and the subcontractor becomes anyone the general contractor hires to perform work for them. The general contractor may do some of the work for the owner and parcel off some work to a subcontractor they aren’t able to do or they may not do any of the work and hire the subcontractor to perform it all on their behalf.
Employees – As it relates to workers compensation benefits, this is the only worker for which the employer is responsible. At first glance, this may appear straight forward, however it is not as simple as it appears. Let’s discuss the a couple different types of employees.
Direct employees are workers we place on our payrolls. We issue checks to them on an expected frequency basis, such as every two weeks. We control when and how they work. We deduct payroll taxes from their paychecks.
These are workers who are considered employees based on the circumstances of their work with the employer. They are considered employees because common law says they are. State law may vary from state to state, so be sure to check with an attorney in your state to help you determine your risk. These workers may be persons an employer will hire on a 1099 basis. To be clear, how a worker is taxed is not the deciding factor on whether the worker is an employee. There are several ways to help determine if there is an employee/employer relationship.
· Does the employer control the details of the work
· Does the employer control the worker’s schedule
· Does the employer provide the tools and supplies for the worker
· Does the worker work for others
· Does the worker furnishes his own tools;
· Does the employer make deductions for Social Security or unemployment;
· Must the worker work certain hours or days; and
· Can the employer can fire the worker at will, or does the worker have the right to finish the project that they began
The more control the employer has over the worker, the more likely the worker will be seen by the courts as an employee. Workers’ compensation law exists for the purpose of reimbursing injured workers for lost wages and medical expenses associated with workplace injuries. It only applies however, if the injured worker can show that an employer-employee relationship existed when the injury occurred. This means that the worker must be considered an “employee” and the employer must be considered an “employer” as the terms are defined by law.
Again, state laws vary greatly as to the interpretation of an employee/employer relationship. Some states have exemptions to protect small businesses from the administrative burdens of workers compensation by requiring a minimum of payroll or minimum number of workers to be considered an employer. When in doubt, always consult with an attorney to help determine your exposure and workers compensation benefit risks.