November 2, 2009

The Tennessee Solution

It's safe to say that no state has really solved the independent contractor/sole proprietor conundrum. Rather than require comp coverage for all workers, most states either exempt sole proprietors from coverage or make it optional. As a result, many small construction sites are full of "sole proprietors." No one works for anyone. Thoeretically at least, no one is in charge. Nonetheless, the building goes up on schedule. And the final cost of construction is far less than similar job sites where all workers are protected by comp. If one of these sole proprietors is severely injured, the state will try to pin the cost on a general contractor, if they can find one. Otherwise, the state fund usually pays for the benefits.

Solving this problem creates new problems. In Massachusetts, the attorney general issued an advisory with a catch-all definition of "independent contractors" that is so broad, it includes virtually everyone. As a result, when general contractors cannot produce certificates of insurance for subcontractors, the cost of these subs is added to the payroll for calculating comp premiums. The cost of doing business goes up substantially.

In Delaware, they passed a law a few years ago requiring coverage for everyone, including sole proprietors. That is the cleanest and most comprehensive way to solve the problem. Alas, it's also fraught with political risk. The subsequent uproar led legislators to back track and repeal the law.

Now, Tennessee is moving ahead with a new law that mirrors the one repealed in Delaware: limited to construction workers, the law requires coverage for everyone, including sole proporietors. Cost estimates for individual policies range from a few hundred to as much as $6,000. The latter figure is pretty daunting to a part-time, semi-retired craftsman who earns less than $25,000 a year.

The Tennessee legislature is considering some modifications to the law, which is scheduled to go into effect on December 31, 2009. They may allow for cheaper-than-usual policies that include high deductibles. Or they might let sole proporietors off the hook, if they can show that their own health insurance will cover workplace accidents. (Now there's a cost-shifting measure that will create some interesting dialogue on the health care side!) The legislature has the right idea: find a way to make comp affordable to people who cannot afford much in the way of premiums.

With the legislature not scheduled to meet again until mid January, the law will go into effect as written on the last day of the year. Solve one problem, create another. Welcome, once again, to the ever-complicated world of workers comp.



Utah has an interesting solution. There the owner of a business entity, a partner in a business entity, or an officer or director of an incorprated business entity, can present documentary evidence of his right to waive his rights under the UT WC law, to the WC insurer of the party for which he proposes to work under a contract. If the WC insurer agrees that he has that right, the insurer issues a "Waiver" document to its policyholder, signed by the person, under which the person in fact waives his rights under the WC law against the party for whom he will perform work. The WC insurer then informs the worker, and its own insured, amd the WC Commission that any WC or employer's liability claim by that person will be denied; and agrees not to use that person's remuneration in calculating the premium for that policy.
This would seem to be a very neat solution. The state's uninsured employer fund would have no obligation to pay any benefits to that person in case of his injury on that job. The working person assumes the whole risk of injury on the job, and can lay off that risk to an occupational accident and disability insurer of his own choice, or just bear the risk himself. The only thing remaining to be done is to repeal the law that obligates any hospital that he may show up at to give him treatment for free.

As a former MT state senator, heavily involved in work comp and small business issues, I got my head handed to me by constituents after voting for a revision of the independent contractor status. I got home from the 1995 session and was immediately called upon to moderate a forum on independent contractors. We planed for 50 and had 500 show up...all very mad. Independent contractor status regarding work comp is and always will be a very hot potato.



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This page contains a single entry by Jon Coppelman published on November 2, 2009 11:29 AM.

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