How do you know whether a worker should be deemed an employee or an independent contractor? Should you even care? The fact of the matter is, how you classify your employees matters and it can help prevent an audit assessment that may result in a large audit bill due at the end of your policy.
Companies are often looking to find ways in saving money. Often times, companies will misclassify certain employees as independent contractors which leads to exempting these employees from the employer’s workers’ compensation requirements. It is very risky for companies to misclassfy their employees as independent contractors. Companies that take this risk are exposed to tax fines, penalties, and serious gaps in insurance coverage that can result in company debt. Risking serious financial loss if an injured independent contractor who is actually an employee and the company failed to carry workers’ compensation insurance can be problematic. While most standard general liability policies will protect you from lawsuits for injuries to independent contractors, none will provide you protection for injuries to employees. Only a workers’ compensation policy will do that.
In helping determine whether an individual is an independent contractor or an employee is based on how the company exercises over how the person performs a job. The following table highlights the criteria in determining an employee versus an independent contractor.
|Sets his or her own hours||An employer dictates time and place of employment|
|Establishes his or her own working conditions||An employer oversees the work environment and establishes policies on what is and isn’t permitted|
|Chooses his or her own dress||An employer establishes an expectation of working dress even to the point of providing uniforms in some circumstances|
|Supplies his or her own tools||Employer supplies tools|
What’s the best way to avoid unnecessary costs to your business? Seek professional advice from experienced professionals who specialize in providing services to your industry.
If you’re worried you might be misclassifying your employees, or simply want to check which class codes your employees should be classified, just get in touch – we’re always happy to give honest and friendly advice.