Arguably the most dramatic change to the American workplace this century has been the introduction and growth of non-employee workers: free-lancers, leased workers, contractors, etc. In 2014, Fortune Magazine reported that there were 42 million people working as “contingent workers” this way. Several experts have speculated that the contingent workforce will overtake traditional employees in the next five years.
National and state law has not caught up with this shift—which is part of the reason the contingent workforce continues to be so appealing to organizations! When a worker is officially “an employee,” the employer-organization has a huge stack of onerous requirements: taxes, insurance, benefits, I-9 verifications, etc. The employer-organization also bears more liability for the acts of employees: official “employees” can sue for discrimination and harassment, for example. Bottom line: the burdens and exposure created by workers who are employees makes the alternative—contingent workers—extremely attractive.
How should you manage contingent workers with regard to workers’ compensation? First, employer-organizations should require that contingent workers secure their own independent workers’ compensation policy. Unless the contingent worker shows proof or his or her own policy, insurers often require that employer-organizations using contingent workers pay premiums for these workers, too. Why? Too often, employer-organizations misclassify workers as contingent when they should be employees.
This leads us to the second step in working with contractors and other non-employee workers: classify them correctly. Contingent workers are so attractive that employer-organizations sometimes stretch to classify workers as contractors. However, what the employer-organization calls the worker is not definitive. If the worker or the government has reason to question the worker’s status, there will be an independent assessment of whether the worker is an employee or not. Said differently, the government and courts decide what a worker’s classification is, not the employer or worker. This year, the definition of “employee” was expanded specifically to crack down on employers who misclassify workers.
For legal purposes, workers are generally divided into two categories: employees and contingent workers (leased, contractor, free-lance, etc.) There are not hard and fast rules determining which side of the ledger the worker falls; rather, a state board, court, etc. will look at a number of softer criteria to evaluate what the worker “feels like.” The government will look at things like:
· Does the employer-organization direct and control the worker in practical ways?
· Does the worker have a significant investment in his or her own equipment, facilities, or means of working?
· Does the worker seek his or her own training, or this is provided by the employer-organization?
· Does the worker perform work for other organizations?
· What kind of services does the worker perform: highly specialized? Distinct from the main work of the employer-organization?
· What is the cultural fit of the worker? Do co-workers view him or her as a fellow employee?
So, what are the real risks here? Is this really worth it? Yes. Inadvertently failing to provide workers’ compensation coverage to a worker who is later deemed an employee is a high-dollar mistake. After all, workers’ compensation offers a strategic trade between employer and employee: the employee is assured of compensation for injury or illness that happens at work in exchange for a barrier to private lawsuit. Forgetting to make this trade with a few workers creates the possibility for open-ended damages—and unexpected open-ended damages.
The explosive growth of contingent workers creates a wrinkle in almost every legal framework that affects “employees.” Make sure you that you have thought-through this wrinkle with regard to workers’ compensation as well as the other laws that affect your organization.