Independent contractors and workers compensation

Melissa Hershberger of Synergy Fest raises the issue of independent contractors and links to an excellent article that appears in the American Institute of Certified Public Accountant's online Journal of Accountancy on correctly classifying independent contractors. The article points out that as many as 38% of the employers audited by the IRS have misclassified workers.

The article cites the case of Jerry Ware v. Workers’ Compensation Appeals Board, Bel-Air Country Club (link is a pdf) as an illustration. Ware was a caddie who filed a workers comp claim for orthopedic injuries. Ware claimed employment but The Club contested, stating that he was an independent contractor who was paid in cash, had no set hours, and was free to work elsewhere. This was really an interesting case because it really straddled the line on many issues used to determine work status. Initially, the Supreme Court denied employment, but on appeal, the decision was reversed. Among the reasons cited in the Appeals Court decision:

• the Club still supervised dress, behavior, types of services rendered and the payment process;
  
• caddying was an integral part of the Club's business;
  
• the plaintiff did not have his own business; and
  
• the Club provided caddie rooms and lockers.

Ronald Ryan at Michigan Comp Law also has a recent weblog post with case law on the employee versus independent contractor. In the case of Reed v. Yackel, the Court of Appeals held that Reed was indeed an independent contractor because, among other reasons, the work he performed was not viewed as integral to the employer's business and he held himself out to the public as one who could be hired for general labor.

Employers must carefully examine this issue on a case-by-case basis - just because you call a worker an independent contractor doesn't mean you won't be accountable for benefits should a work injury occur. The issue of control is central: who controls the work? Who controls the hours and the place the work is performed? Are taxes withheld? Are benefits provided? Are tools or equipment supplied? How closely is the work supervised? Are you the workers' only client?

The Journal of Accountancy suggests that employers rigorously apply the 20 common law factors that the IRS developed to determine independent contractor status. The article includes these factors - it's a good bookmark for any HR director to note. The U.S. Chamber of Commerce also lists The IRS's 20-Factor Analysis in a format that can be easily printed.