Tuesday, April 10, 2012

Employees vs. Independent Contractors

There's an important article in the April 2012 issue of Best's Review about the liabilities of insurance producers and other financial professionals under state laws governing the mis-classification of workers as independent contractors.  The article noted that a recent change in California law creates joint and several liability for anyone who advises an employer to improperly classify a worker as an independent contractor.

It's not only insurance producers who have cause for concern here--other advisers, notably accountants, may well have exposures here.  And of course, employers themselves have more cause than ever  to be very careful on this subject, in many states besides California.

Even if other states have not added the joint and several liability for advisers, the potential penalties for employers who misclassify employees as independent contractors are substantial and growing.

A lot of states have been enacting statutory penalties for employers who, in the state's eyes, try to make employees into independent contractors.  States have been busy detailing specific criteria for distinguishing between employees and true independent contractors, and creating penalties for employers who get it wrong.

And of course, this issue is often the cause of unexpected increases in Workers Compensation insurance premiums, as insurers pay increased attention to situations where the use of uninsured independent contractors or sub-contractors entitles the insurer to charge premium.

Again, it can be vital to check into the specific requirements of a particular states, as the rules can vary significantly from one state to another.  A number of states have created registrations where sole proprietors or partnerships can opt out of the Workers Compensation requirements, so that companies that use their services do not incur Workers Comp insurance liabilities.  But other states offer no such protections, and these differences can trip up unwary policyholders.

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