Calling Employees Independent Contractors to Avoid Work Comp

Employees or Independent Contractors: How to Tell the Difference New York Attorney Ted Ronca, has some tips on how to differentiate between an "employee" and an "independent contractor". Cutting workers' compensation premiums by calling your employees independent contractors is not a new idea or a smart idea. It is a device easily detected, fraught with peril and contains unanticipated "heads-I-win-tails-you-lose" traps for the unwary. At first, the idea seems to have benefits for both employer and employee. The employer ceases paying for workers' compensation, short term disability, unemployment and Social Security – quite a savings. The employees are persuaded to go along by being told of the vast new tax deductions they will have with their new businesses "from home." But what does a truly "independent contractor" (IC) look like? They have: 1. More than one "customer" often called "clients" 2. Variable hours with each customer set by the IC 3. A fixed address that is their own 4. If home based, a "bona-fide" office meeting IRS standards 5. Usually a recorded business name, license, federal identification number 6. A listed business phone number 7. Usually an accountant and filing a business return 8. Usually business cards 9. Their own tools, equipment and vehicles 10. Their own business bank accounts When more than half of these are not present, the scheme quickly falls apart. What also gives it away is the employer is using people as "independent contractors" for tasks almost always performed only by full-time employees. The obvious downside for the employer, when detected, is having to pay past premiums with additional penalties, often quite substantial. But there is more – much more. The IRS becomes involved, as does Social Security and state and local laws. (An audit quickly leads to scrutiny of the returns of ALL employees, not all of whom will cooperate with the scheme or remain silent.) And, in the worst of scenarios, the "independent contractor" might have an injury on the employer's premises. When that happens, the employer is no longer protected by the exclusivity of workers' compensation, unless they, and the employee, immediately confess to the fraud – a course that is unsure at best. As the explanations grow the scrutiny becomes more intense. The amounts of money, if the scheme is being carried on with a number of employees, is enough to attract the interest of state attorneys general and federal law enforcement, as well as disgruntled, or just plain honest, employees who stand to collect substantial rewards for making a discreet phone call. (workersxzcompxzkit) For over a decade, law enforcement has known workers compensation fraud lights up the paper trail to tax fraud – and follows it with zeal. An employer is wise to remain out of that spotlight. Author: Attorney Theodore Ronca is a practicing lawyer from Aquebogue, NY. He is a frequent writer and speaker, and has represented employers in the areas of workers' compensation, Social Security disability, employee disability plans and subrogation for over 30 years. Attorney Ronca can be reached at 631-722-2100.