2008: An Independent Contractor Odyssey

2008: An Independent Contractor Odyssey Ronald W. Cooper, CWCPPresidentDuane M. Schroeder, CPCUVice President

1Ronald W. Cooper, CWCPPresidentDuane M. Schroeder, CPCUVice President

2008: An Independent Contractor Odyssey

We are going to have a little fun with this difficult subject matter today and present a theme from 2001: A Space Odyssey. We will address this gray area straight on and see where the journey takes us. Take questions at any time. If your questions take us out of orbit, we trust that Mission Control and our trusted computer, HAL, will get us back on course.2

Mission ready

Destination: Contractor Constellation

3Assisted by hal 9000 computerComputer that was the brain and nerve system of the Discovery space ship now fits into this laptopBecause programmed by humans, HAL is not perfect

HAL can you read me? HAL?Thank you HAL, but its morning and Daves not here.

Lets start the journey. HAL can you read me? HAL?Thank you HAL, but its morning and Im not Dave.4The goal of workers compensation programs is to provide prompt, adequate benefits to injured workers while at the same time limiting employers liabilities.

Workers compensation has become a substantial component of the U.S. social insurance system and a significant element of the overall cost of employment. WC Theory - trade risk for certaintyOpen the next slide please, HAL

Stop calling me Dave. HALs not quite himself this morning. I can see hes not the only one in the room in that condition. Well just manually advance the slides for now. Everyone else just keep gulping your coffee.5WC Theory - trade risk for certaintyEmployerNo faultNot suedEmployeeNo fault (some exceptions)MoneyMedical care & rehab66Problem Employers may try to evade the system by calling their employees independent contractors.7First independent contractorContractor supplied his own (first) tools.No employer/employee relationships were yet established.All workers were part of family economic unit.

3 million years ago8Employers assumption of financial responsibility for all work-related injuries Conflicting GoalsSelf-employed persons freedom to make a livingvs.HAL, whats your take on the confliction?

Are you OK HAL? Im a bit concerned.

Daves not here! Lets continue our contractor journey.9consequencesCreates an uneven playing field for those who follow the lawUndue burden for the true independent contractor to please others insurance requirementsContentious premium audits and related dispute resolution proceedingsReduced credibility of the ratemaking database10Employee Definition"Employee means every person, including a minor, in the service of another, under any contract of hire or apprenticeship, written or implied,

except one whose employment is both casual and not in the usual course of the trade, business, occupation, or profession of the employer.

Reference IC 22-3-6-1 (b)1111Waiver of WC By employeeStatute says "...no agreement by an employee or his dependents to waive his rights under IC 22-3-2 through IC 22-3-6 shall be valid...

IC 22-3-2-1512Independent Contractor Definition"A person is an independent contractor in the construction trades and not an employee under IC 22-3-2 through IC 22-3-6 if the person is an independent contractor under the guidelines of the United States Internal Revenue Service.

Reference IC 22-3-6-1 (b) (7) and IC 22-3-7-9 (b) (5)1313IRS Form SS-8"Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding"

46 Questions and these categories:Behavioral ControlFinancial ControlRelationship of the Worker and FirmService Providers or SalespersonsIssue determination or information letter

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Your analysis on completing this form please HALWell, at least HAL didnt call me Dave. We are observing some improvement.Is there anyone here named Dave? (Give him a prize)

www.irs.gov/pub/irs-pdf/fss8.pdfeference

14Who Decides Whos Who?WC BoardIndiana Courts

When?After workplace accidentRelationship at time of injury1515Space travelers what would the courts say?16

16Indiana court of Appeals decisions

In two cases, Court of Appeals applied ten-factor test:

1) Extent of control over work details2) Worker engaged in a distinct occupation3) Work done under the direction of the employer or by a specialist without supervision4) Skill required5) Who supplies tools and place of work6) Length of time worker employed7) Method of payment: by time or job (1099 not enough)8) Work part of regular business of employer9) If parties believe they created master/servant relation 10) If the principal is or is not in business

Play in middle of discussion: Hal Just a moment.Hal, are you sure?

Play HAL clips after talking about 1099s arent enough proof.In all jurisdictions, one core legal principle is if the hiring party has the right to control only the result of the work, or does he also control the means and methods of accomplishing the result. The second common factor looks at the dependence of the worker on the hiring entity, i.e. an independent contractor would be expected to have multiple source of income at least over a year or two. In some states licensing seems to be a significant factor.17Independent Contractor Clearance Certificate State Form 45899In construction tradesCertifies person is an independent contractorCertifies person has WC insurance or is a qualified self-insurerPerson desires to be exempt Foregoes the right of recovery from anyone for whom this person works as an independent contractorHolds harmless any person and their carrier contracting with the named person (as an independent contractor)18Certificate intended to protect entity doing business the independent contractor18Independent Contractor Clearance Certificate TriviaValid for 1 year$20 fee: $5 DOR & $15 WC BoardEffective 7 days after stamped by BoardContractor who assists employees in filing a false statement for independent contractor status commits a Class D felony.

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Incoming message

Board processes from 5 to 90 certificates daily."My business is incorporated and I am an officer of that corporation." If the answer is yes, then the person is not eligible for the exemption since he or she is an employee of the corporation. Corporate officers cannot exclude themselves in Indiana. The Board will reject the application. 19Clearance Certificate form20

"My business is incorporated and I am an officer of that corporation." If the answer is yes, then the person is not eligible for the exemption since he or she is an employee of the corporation. Corporate officers cannot exclude themselves in Indiana. The Board will reject the application.

Board processes 5-90 forms daily20Statutory exemptionsRailroad employees Employees in federal commerce Real estate professionals Independent contractors Independent contractors in the building and construction trades Athletes on scholarship Inmates of penal institutions Volunteers Youth coaches21Statutory exemptions - futureMoon construction workers

22Carriers right to charge a premiumPremium basis includes payroll and all other remuneration payable during policy for:

1. All officers and employees

2. All other persons engaged in work that could make us liable under Part One (Workers Compensation Insurance) of this policy.

If you do not have payroll records for these persons, the contract price for their services and materials may be used as the premium basis. This paragraph 2 will not apply if you give us proof that the employers of these persons lawfully secured their workers compensation obligations.

23First Sub-contracting crew

UninsuredFirst recorded instance of sitting down on the job24What? No Coverage!If Uninsured Subcontractor,General Contractor Pays...Full contract price, orPart that represents payroll, at least:50% L&M contract90% Labor only33% Vehicle contract25Weve covered a lot of information just now. How is it going HAL?

25Looks like HAL is firing on all memory chips now! Glad to have you back pal.What do I do?Certificate of insurance Certificate of exemption (if in construction trades)Payroll amounts of a contractor Contract price Confirm status with carrier at inceptionIncoming message

My sole proprietor has an if any minimum premium policy. Will that work?26Employee misclassificationSee article titled Employee vs. Independent Contractor on our website www.icrb.net White Papers:GAO Employee Misclassification 5/8/2007NAIC White PaperState initiatives: NY, ME, NH, PA, ILIndiana - SB 345 (died 2008 session)Proposed new IC 22 -2 14 titled Employee Classification Act by Rep. NiezgodskiEmployee Misclassification Prevention Act27Employee misclassification Prevention ActH.R. 6111 introduced 5/21/08S. 3648 introduced 9/29/08Kennedy, Kerry, ObamaAmends Fair Labor Standards ActMax of $10k per violation for employer who repeatedly or willfully failed to accurately classify a worker28

Independent & Enlightened!Lets continue please, HAL29