Archives for July 2017

Independent Contractor Employee Checklist Employers Contractors

July 27, 2017 By JL Risk Management Consultants

Independent Contractor Employee Checklist

The independent contractor employee checklist answers quite a few of the question we receive when I write an article on independent contractors. Yesterday, I wrote an article that included all the IRS independent contractor information. I came across this info at the Hawaii Work Center website. They have distilled the ACE (see bottom of article) version of the independent contractor employee checklist.

I have used this in my own business when dealing with subcontractors. The Ladder of Insurance(c) serves as a caveat when hiring contractors that have their own employees.

How can I tell if I a worker is an independent contractor or employee?

Independent contractor or employee? Below are examples of the questions the courts may review in making a determination.

The most important consideration is that of control: Does the employer have the right to control or direct only the result of the work, and not the means and methods of accomplishing the result? If so, it is more likely that the worker will be considered an independent contractor.

Thus, the following factors may be considered in determining whether the employer has sufficient control over the worker to result in employment status. Note that there are factors that are common to both“independent contractor” and “employee”; therefore, it is best to look at the relationship as a whole rather than focusing on one or two factors.

The bottom line: The more the relationship looks like an employer/employee relationship, where the employer has the right to control the means and methods of accomplishing the desired results, the more likely it is that the courts will view it as such.

Picture Of Two Man Employer and Employee Independent Contractor Employee Checklist On Construction Area

• Is the worker required to follow specific instructions as to the means and manner of performing the work? (Yes=Employee; No=Independent Contractor)

• Is there a set amount of hours and days that the person must work each week? (Yes=Employee; No=Independent Contractor)

• Does the employer supply the office, equipment, and tools needed to accomplish the work? (Yes=Employee; No=Independent Contractor)

• Must the work be performed on the employer’s premises? (Typically, a “yes” answer would indicate the person is an employee; however, there are instances where an independent contractor would be required to perform on the premises. You would need to consider your answer to this question in relation to everything else.)

• Is the worker trained by the employer to perform the assignments? (Yes=Employee; No=Independent Contractor)

• Is the assigned work a part of the regular business of the employer? (Yes=Employee; No=Independent Contractor)

• How long does the relationship continue? (In general, the longer the relationship continues, the more the worker looks like an employee.)

• Can the employer assign additional projects to the worker? (Yes=Employee; No=Independent Contractor)

Woman Assistant Independent Contractor Employee Checklist With Man

• Is the person paid in the same manner as employees, e.g., biweekly? (Again, typically a “yes” indicates the person is an employee, but there may be instances where the independent contractor is paid in the same or similar manner. Here
again you will need to consider this factor in relation to all other factors.)

• Can the worker hire assistants? (Yes=Independent Contractor; No=Employee)

• Does the worker provide services to more than one firm? (Yes=Independent Contractor; No=Employee)

• Does the worker make his or her service available to the general public? (Yes=Independent Contractor; No=Employee)

• Is there a written contract between the parties delineating their rights and responsibilities? (Yes=Independent Contractor; No=Employee)

• Can either the worker or the employer terminate the relationship at will? (Yes=Employee; No=Independent Contractor)

• Is the worker making any investment into facilities or equipment, and will the person realize a profit or risk of loss? (Yes=Independent Contractor; No=Employee)

The article was adapted by, the National Association of Colleges and Employment (NACE) . Thanks to them for providing the independent contractor employee checklist.

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IRS Contractor Employee Rules – Updated Web Page With Videos

July 26, 2017 By JL Risk Management Consultants

IRS Contractor Employee Rules Have Been Updated

The IRS Contractor Employee rules assist business owners with who can be considered independent contractors or employees. Each state’s Workers Comp rules may have their own employee vs. contractor tests. The IRS Contractor Employee rules supply a great basic place to start the determination.

House of the IRS Contractor Employee Rules Internal Revenue Service

Wikimedia commons – Joshua Doubek

I have updated this section often over the years. Below is the complete webpage from the IRS. One specific difference is the addition of statutory employees and statutory non-employees. Statutory employees can be very important such as in the case where South Carolina made a ruling on statutory employees post-accident.

Independent Contractor (Self-Employed) or Employee?

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It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.

Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Select the Scenario that Applies to You:

I am an independent contractor or in business for myself
If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center.
I hire or contract with individuals to provide services to my business
If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are.

Determining Whether the Individuals Providing Services are Employees or Independent Contractors

Woman IRS Contractor Employee Rules At Her Office

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be –

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

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Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

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Work Comp Rate Bureaus Becoming Credit Bureaus?

July 13, 2017 By JL Risk Management Consultants

WC Rate Bureaus and The 1.01 Employer Conundrum

All Work Comp Rate Bureaus consider an employer with a 1.0 Mod as your average employer in reference to accident rates and severity. However, as I wrote in my last article millions are on the line if a Mod increases above 1.0.

paul otlet work comp rate bureaus sitting at desk

Wikimedia Commons – Paul Otlet

Many employers are now feeling the pinch when their Mod increases or stays above 1.0. A few years ago the Experience Mod Rating formula was changed by NCCI. The Primary Loss part of the claim increased from $5,000 to $15,000.

The Primary Loss equates basically to the part of the Total Incurred that is not discounted. The Excess Loss has a discount factor that is applied to the reserves above the primary loss.

An E-Mod of 1.04 from the Workers Comp rate bureaus can actually have an employer shunned from bidding on governmental contracts. How do I know this is the case? Over the past few weeks and when I wrote the article earlier this week, I heard from quite a few employers with that very concern.

Hand Analyzing Work Comp Rate Bureaus Arrow Up And Down With Coins

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The work comp rate bureaus will usually say that we only process the numbers and generate Mods. That may be true, but now many governmental agencies and large employers producing bids think otherwise.

One of the bid considerations for major contractors and governmental agencies is having a 1.0 E-mod or STOP HERE and go no further before the employer produces a bid. It is not a bid consideration. It is a denial.

How should the Rating Bureaus fix the situation? They should not be responsible. The two parties responsible consist of the employer and the contractor.

A great suggestion to the Risk Managers would be to stop at the first number to the right of the decimal. For instance, a Mod of 1.08 equals 1.0. In my opinion, an employer with a 1.08 Mod is not that much riskier than an employer with a 1.0 Mod.

Man Standing Work Comp Rate Bureaus With Woman Behind

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I have spoken to a number of Risk Managers that say – hey, I have to draw the line somewhere.

The other side of the coin points to the employers. Spending funds now for safety remains the answer. The expenditures will pay off in time. The business owners and the Senior Management of companies need to allow time for safety efforts to take effect.

Throwing funds at safety for one year and expecting the Mod to lower immediately is not the way the Workers Comp system works. Many safety managers and in fact, risk managers were shown the door because the company’s Mod did not move. The Mod process takes four years to show fully.

As the author Charles Givens once said in his book Super Self – if you want to win in someone else’s ballpark, you have to play by their rules. The Work Comp Rate Bureaus are the ballpark. A great Safety Program keeps you playing in your ballpark. No injuries mean you get you play in your ballpark.

J&L Risk Management Consultants assisted many employers to reduce their Experience Mods over the years. Other than a safety program, a full Loss Run Analyses brings down Mods as long as your company does not have a string of accidents.

Experience Mod Of 1.01 Can Cost Company Millions – Important

July 12, 2017 By JL Risk Management Consultants

Experience Mod Of 1.01 Can Negate Large Private or Government Contracts

An Experience Mod of 1.01 does not necessarily indicate that a company operates unsafely. We have received many questions over the last three to your years on this situation.

Picture Man Ladder of Insurance Experience Mod Posting

Wikimedia Commons – British Library

Over the past 30 years, I have presented and wrote how an X-Mod is like a credit score from hell.

Government and now even private contracts require an employer to have a 1.0 Mod or less. Does an employer with a 1.01 Mod versus one with a .99 E-Mod denote a better level of safety? Many contractors are caught on the outside looking in for having such a Mod.

One has to agree that dealing with an unsafe subcontractor can cost the Risk Manager’s organization dearly. The Ladder of Insurance (c) shows how a contractor can be responsible for employees they never knew that had on staff.

Then again, to eliminate a good subcontractor that has a 1.05 Mod my not be providing the best value to that Risk Manager’s organization.

I had just got off the phone with a very large contracting firm in this very situation when I decided to write this article, What is a contractor to do? This contractor had a Schedule Credit Rating Factor which helped reduce their Workers Comp premium. Then again, the amount of premium saving was paltry compared to the inability to bid on certain contracts.

There exists a large alternate market which includes Self Insurance, PEO’s, Captives, Large Deductibles that may be worth pursuing to possibly remove the employer from the Experience Mod System.

Businesswoman Experience Mod With Document

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The most effective method would be the re-doubling of safety efforts to reduce the Mod back at or below 1.0. How much safety funding would bring the Mod below 1.0 when one bad year can push it above 1.0? That is the employer’s conundrum.

To the government and large private contract bidders – good luck with your Experience Mod.

2020 Update –

The 1.0 Experience Mod remains a statistic that large companies and governmental RFPs review to decide if a bidder stays in the running for a big project. Do not think if your company is an incumbent bidder that an Experience Mod of 1.01 or greater will not be taken into account.