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December 5, 2022

Avoid Paying Insurance for Individuals that have Never Been on Your Payroll

Q: We recently lost an unemployment insurance claim made by a 1099/independent contractor. This person has never been on our payroll. We had two appeals to the hearing and we still lost. Have other NSCA members experienced anything similar?

A: I’ve heard of 3 similar instances of this lately. Even doing the W-9 and making sure they pass the test as an independent contractor (having other customers) apparently doesn’t isolate us completely from an employment type claim.

We’ve even had one recent report of a workers comp claim made on a member company where the individual wasn’t on their payroll but rather worked for a sub they hired that as it turned out had no insurance of any type. While these claims may not cost much initially, the impact on your future rates is of major concern. One of the member companies had to spend $10,000 in legal fees if they were to fight the claim and just decided not to fight it.

This is all just crazy in my opinion. My suspicion is that these incidents stem from the increased scrutiny of the DOL to properly classify employees. The government is working harder than ever to find misclassified employees (exempt status) and independent contractors that should be on the payroll. Let’s face it, most government agencies are looking for any additional revenue they can get right now.

Here’s how far-reaching this is. I had a call from a church that hires sound operators to run the A-V only on Sundays. They hire people on a contract (1099) basis. They now owe FICA for the last several years as the operators really weren’t in a business, they were just individuals working for a couple hours on Sunday to make a few extra bucks. We are going to see more and more of this. It actually could be good for our services business as the “side job” work may go back through an actual company.

My best advice for our members is to carefully screen and do the DOL test for what constitutes an independent contractor and then make sure they are properly insured. Do the same for your exempt and non-exempt employees. Let us know if you need additional resources and keep reporting these problems so your fellow members avoid these costly situations. CW

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