If your organization routinely hires independent contractors, be aware that the language in your workers’ compensation insurance contracts could contain legal problems. And, unless you look closely, you might not recognize them until it’s too late.
Many insurers insert audit provisions in their contracts. And if they find you’ve paid out big bucks in 1099 labor expenses, they may reassess your premiums based on how much you paid independent contractors who didn’t carry workers’ comp.
Your best bet? Double-check that you’ve properly classified workers as independent contractors by running their situations by your accountant or attorney. Or, require contractors to prove they carry workers’ comp insurance or don’t need it.
Recent case: Robert Brewer ran a painting business and secured workers’ comp coverage through Royal Insurance Company. He told Royal he didn’t have employees and didn’t use subcontractors. His policy stated the insurer could audit Brewer’s books and revise the premium based on its findings.
During an audit, Royal found that Brewer had paid painters more than $405,000. He paid them in cash and gave them a 1099 form, classifying them as independent contractors.
The insurer sued Brewer for an additional premium of more than $88,000. Because Brewer never had proof of the subcontractors’ insurance coverage, the terms of his policy meant he had to pay the premium based on their total 1099 earnings. (Brewer v. Royal Insurance, No. A06A1912, Georgia Court of Appeals, Third Division, 2007)
- How to Fire an Employee the Legal Way: 6 Termination Guidelines
- Can we make employee pay cost of lost BlackBerry through payroll deductions?
- Misclassifying employees as contractors? IRS wants to know
- When terminating or laying off employees, be sure to pay out accrued leave
- What's the hourly rate for family member caring for employee out on workers' comp?