Tech Talk

Tech Talk
Are they independent contractors or employees?
Saying it doesn't make it so!

By Irene Morrill, CPCU, CIC, ARM, CRM, LIA, CPIW
Vice President of Technical Affairs

<= br> 137 Pennsylvania Avenue
Framingham, MA 01701
(800) 972-9312 - (508) 628-5452

October 2005

Fall is in the air … which = means … yes …The BIG EVENT, the MAIA annual convention is almost upon us! We're starting earlier and ending la= ter … the rookie or cross-training "intensive" day is Saturday … for either homeowners, or auto or now … even commercial lin= es. Sunday is our "CSR Appreciation Day" with all sorts of seminars= to whet your appetites for insurance …or not. Monday is another day pa= cked with informational seminars on various topics. It will be my third annual "marathon" of coverage day … see if you can outlast me … 4 2-hr programs …the last to be fun and games. And, this year we'll be offering a few half-day seminars on Tuesday … I'll be doing a commercial auto rating seminar.

Now … just to whet your app= etite for one of my Sunday seminars … for your W/C clients … can YOU explain what an "employee" REALLY is these days?

Workers' compensation and indepen= dent contractors v. employees .. what is what?
Just when you think that you can explain something to your client …either a policy is changed … a court case reinterprets everything … or a law is passed to influence our thinking …

The W/C law was NOT changed ̷= 0;but MGL Chapter 149 Section 148B was!

MGL 149 Secti= on 148B.

(a) For the purpose of this chapt= er and chapter 151, an individual performing any service, except as authorized u= nder this chapter, shall be considered to be an employee under those chapters unless:--

(1) the individual is free from c= ontrol and direction in connection with the performance of the service, both und= er his contract for the performance of service and in fact; and

(2) the service is performed outs= ide the usual course of the business of the employer; and,

(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in= the service performed.

(b) The failure to withhold feder= al or state income taxes or to pay unemployment compensation contributions or workers' compensation premiums with respect to an individual's wages shall not be considered in making a determination under this section.

(c) An individual's exercise of t= he option to secure workers' compensation insurance with a carrier as a sole proprietor or partnership pursuant to subsection (4) of section 1 of chap= ter 152 shall not be considered in making a determination under this section.=

So … if you had memorized or given your W/C client a copy of the "20 point" test as the crit= eria for determining "employee" status … DISREGARD IT … = it is "passé". Should you want to see it … just look = at the Tech Talk section on your association's website massagent.com®. N= ow … a much STRICTER definition "rules" in Massachusetts ...

There are THREE characteristics t= hat MUST apply simultaneously … in order for an individual to be consid= ered an independent contractor and NOT an "employee".

1) The individual must have compl= ete autonomy in when, where and how the work will be done - free from control … if I show up … how LUCKY you are … how I choose to do= it is up to me.

Certainly an insurance agent hiri= ng a roofer to fix the agency's roof meets this criteria. But, does a Home Development GC fit this criteria when he/she uses the same contractors for roofing or drywalling over and over again. When the contract REQUIRES these "independents" to show up when demanded … so that the work flows in a timely fashion? =

2) What the independent contracto= r does must be DIFFERENT from what the person hiring him/her does. How broad is = the law when discussing "outside the normal course of business?"

Certainly an insurance agent hiri= ng a roofer to fix the agency's roof meets this criteria. Again, what about the home development GC … is the drywaller or roofer hired by the GC outside of the home developer GC's normal cours= e of business? Most homes that I have seen have roofs and walls …=

3) Individual in question is customarily engaged in the activity or profession for which he/she was hi= red. Well … this is the easiest of them all.

Certainly someone who does roofin= g and has a business card will meet this criteria wh= ether hired by the insurance agent OR the home development GC … but ONE o= ut of THREE doesn't mean diddly squat!

Buying W/C coverage or a 1099 doe= s NOT an independent contractor make!
And for ADDED measure … the law throws in … it DON'T matter whether that individual purchases a W/C policy - whether or not he/she elected coverage for him/herself in this policy or not!

Certainly the Attorney General an= d our legislative body wanted to modify the law for reasons OTHER than W/C insurance per advisory language:<= /o:p>

Employ= ers that improperly classify employees as independent contractors deprive these workers of proper Social Security contributions, workers' compensation insurance and other benefits, while also unfairly reducing employers' sta= te and federal tax withholding, and related obligations. This practice disadvantages those businesses that bear higher costs in complying with t= he law. In this way, independent contractor misclassification undermines fair market competition.<= /p>

However … will the modifica= tion to the Labor and Industries section of Massachusetts General Laws (149) affect the interpretation of just WHAT an employee is under MA W/C law 15= 2?

Consider the following from the Attorney General's advisory notice about the law change:

II. Viola= tions of the Presumption of Employment Statute

An employer violates the statute = when two acts occur. First, the employer must classify or treat a worker as an independent contractor although the worker does not meet each of the crit= eria in the three-factor test identified on pages 2-5, supra.

Second, in receiving services fro= m the worker, the employer must violate one or more of the laws enumerated in t= he Independent Contractor Law, including several of the following wage and h= our, taxation, and worker's compensation statutes:
……

<= span style=3D'mso-list:Ignore'>· The worker's compensation provisions punishing knowing misclassification of an employee. See M.G.L. c. 152, § 14.

Whether or not the GC "knowingly" violates the W/C law by not classifying independent contractors as employees will merely determine whether or not the GC is subject to "substantial civil and criminal penalties." But R= 30; in ANY case the GC will be subject to AUDIT…and just HOW will the insurance carrier address audits in light of the changes to MGL Chapter 1= 49?

Already many GC's are "surpr= ised" …to say the least that at audit the carrier is increasing payroll f= or the value of the "supposed" independent contractors who supplied W/C certificates but never elected INTO coverage …

Now …does it really MATTER = if the "independent contractor" elects into coverage ... or not… Will your GC's audit be "monumentally huge" because the carrier chooses to use the |definition of MGL Chapter 149 and disregard a certifi= cate from the independent showing he/she elected into coverage?

Curiouser and curious= er … But … we will look at this concept as well as a few other W= /C concepts at the November Convention… see ya then.

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This a= rticle has been developed expressly for the members of MAIA. Reprint by other th= an members without the express permission of the author is not permitted.