The things that drive small businesses crazy don\u2019t only come from government.\u00a0 This story involves the confusing interplay of insurance, regulation, and lawsuits.<\/p>\n
A friend who runs a small business called me to ask about this:\u00a0 her business uses the services of professionals on a contract or consulting basis.\u00a0 Her insurance company has just informed her that she must pay workers’ compensation premiums for the consultants.\u00a0\u00a0 The insurer is going to do her a favor and start the premium increase this year.\u00a0 It could have demanded premiums for last year also, on the theory that it was exposed to claim costs last year.<\/p>\n
Wait a second, she says.\u00a0 Workers’ compensation is required only for our employees, isn\u2019t it?\u00a0 These consultants are not our employees.\u00a0 We should not have to pay premium for them, right?<\/p>\n
The insurance company does not have to explain.\u00a0 If my friend does not pay the premium, the insurer can refuse to renew the policy.\u00a0 So you think she \u00a0can switch to another insurer.\u00a0 Nope.\u00a0 If there is an allegation of unpaid premium,\u00a0 no other insurer will write the policy.\u00a0 Since her company is required by law to have coverage,\u00a0 this effectively would force it out of business.<\/p>\n
The insurance company says her business does not have to pay premium on these consultants if she can provide documentation that they have their own workers’ compensation insurance.\u00a0 But these consultants are self-employed individuals.\u00a0 By law they do not have to carry workers’ compensation on themselves, and it would not make sense for them to do so.<\/p>\n
The insurance company has a logical argument. \u00a0\u00a0In the simplest case, a small business could be in plain violation of employment law, having workers who are really employees fraudulently categorized as independent contractors.\u00a0 Some small businesses are tempted to do this to avoid paying that extra premium.<\/p>\n
If such a worker suffered an injury, the worker could make a claim for workers’ compensation benefits.\u00a0 The insurer would either pay the claim or deny it, in which case the worker could take the case to workers’ compensation court.\u00a0 The insurer pays the cost of the legal defense and might lose and have to pay the claim anyway.<\/p>\n
A genuine independent contractor could also try to \u00a0claim workers’ compensation benefits from the small business that hired him or her, and the insurer would have the same responsibility either to pay the claim or pay for the litigation.\u00a0\u00a0 Even though the claim was not justified, the insurer would bear that cost.\u00a0 So some insurers conduct audits of their client companies, looking for this kind of exposure and demanding that the small businesses pay premium to cover the risk \u2013 that is, pay for insurance for people who are not their employees.<\/p>\n
We don\u2019t know what actually happens in the real world in terms of claims filed by independent contractors, because this is not tracked or reported.\u00a0\u00a0 So it\u2019s not possible to say with authority whether insurers are justifiably covering their risk or making unfair demands on clients who have little choice.\u00a0\u00a0 We don\u2019t know how much auditing is done, how many businesses are paying unjustified premiums, or how many businesses are trying to get away with illegally misclassifying employees. Maybe you or somebody you know is in one of these positions.<\/p>\n
I tell my friend she has some options, but there is not much in the way of regulatory process to help the small business.\u00a0\u00a0 Even though employment law attempts to draw a clear line between employees and independent contractors, when cases are individually litigated, the results are unpredictable.<\/p>\n
It\u2019s not that we shouldn\u2019t be taking care of people who get hurt.\u00a0 It\u2019s just that we can\u2019t afford to continue to do that with convoluted, confusing, expensive systems like this.<\/p>\n
Triple Spaced Again, \u00a9 New Mexico News Services 2011<\/p>\n","protected":false},"excerpt":{"rendered":"
The things that drive small businesses crazy don\u2019t only come from government.\u00a0 This story involves the confusing interplay of insurance, regulation, and lawsuits. A friend who runs a small business called me to ask about this:\u00a0 her business uses the … Continue reading