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Are You Misclassifying Independent Contractors?

With a growing economy, more and more Colorado employers are opting to hire independent contractors and subcontractors to get the job done and to save money. Oftentimes employers are even given incorrect advice by misinformed accountants who are suggesting this as a way of avoiding workers’ compensation cost.

It turns out that many Colorado employers are often misclassifying workers as independent contractors, which may leave them without workers’ compensation insurance.  In that case, if an employer hires an “independent contractor” he could very well be on the hook if that individual is injured. That is because under the Workers’ Compensation Act, you may be deemed the “statutory employer” of the uninsured contractor’s injured employee.

Labor laws are complicated and many misclassifications may be honest mistakes. In this case the ramification would probably be an additional premium charge picked up after the fact by the carrier’s auditors. However, companies who “willfully disregard” the Colorado Employment Security Act” by misclassifying workers as independent contractors will be charged the additional audit premium and be subject to stiff fines from the Department of Labor and Employment. These employers are also required to pay an additional 50% in benefits to the injured worker. On top of this, the defaulting employer may be subject to additional penalties that can be assessed by the Division of Workers’ Compensation.

Two concerns when you hire someone are (1) whether that person is an employee or independent contractor, and (2) whether anyone hired by that person to work on your job is covered by workers’ compensation insurance. How can you tell if a person who works for you is an employee or independent contractor? It’s important to be certain of the difference.  A simple review of  hours, duties and benefits may help you determine the worker’s status.

Independent contractor

  • Sets his/her own hours.
  • Directs and oversees his or her own work independently of the employer.
  • Is not entitled to benefits such as workers’ compensation coverage.

Employee

  • Hours and tasks are determined and directed by the employer.
  • Person is subject to workers’ compensation coverage, as well as overtime and payroll taxes.

If you hire a contractor who brings additional workers to your job, always ask the contractor to provide a certificate of insurance to make sure the contractor’s employees are covered. You can also check with the Division of Workers’ Compensation website, to get immediate verification of a company’s coverage status.

At RSS we understand that labor laws, classifications and workers’ compensation can be confusing and frustrating. Please contact our office to speak with one of our experienced insurance professionals if you have questions, need advice, or would like us to help you properly put insurance coverage in place for your business and/or your employees.

Source: Pinnacol Assurance