Insureon Blog

Workers' Comp Insurance: When Is Someone a Contractor?

13. January 2015 07:18

horses in a stable

Usually when we write about Workers' Comp audits and lawsuits, it's because employers either purposefully or inadvertently misclassified an employee as an independent contractor. But now the tables have turned in a New Jersey case involving a horse trainer.

According to a report by the National Workers Compensation Defense Network, licensed horse trainer Randolph Perry trained horses for Robert Horowitz Stable at the Meadowlands Race Track. All was well until one day, Perry slipped on an ice patch and sustained a serious injury. He filed a Workers' Compensation claim against Horowitz, and that's where things got weird.

In a New Jersey Workers' Compensation case, it's not uncommon for an alleged employer to make the case that the plaintiff is an independent contractor, and that's the defense Horowitz used. Though Perry pointed to instances where Horowitz controlled how his work was done – such as specifying how many miles the horses must run – the court could not overlook the fact that that Perry worked with many different horse owners over his 40-year career.

Here are several other factors that helped the court decide Perry is self-employed:

This case is the perfect example of a close call: there was evidence to both support and negate Perry's status as an independent contractor. And where does that leave a small-business owner who wants to abide by the law and hire contractors? Can you ever be sure that the employment lines aren't getting blurred?

Let's take a look.

Off to the Races: The Control Test and the Relative Nature of Work Test

Say you want to hire an independent contractor to help your marketing business churn out some engaging web content for your clients. But you also don't want to run afoul of your state's Workers' Compensation laws, which require that you insure all your employees. You need to be certain that your contractor is indeed a contractor in the law's eyes, lest you face severe fines and penalties for not having adequate Workers' Comp coverage. (You can read more about that in "Labor Department Helping States Crack Down on Worker Misclassification" and "This Common Mistake Can Cost Small Businesses Thousands.")

You're absolutely right to cover your bases. After all, the burden of proving that your contractor is not an employee falls on you. Luckily, there are some "tests" that can help you determine if a person is an independent contractor:

To learn more, read the IRS article, "Independent Contractor (Self-Employed) or Employee?"

Quick Tips for Small-Business Owners Hiring Independent Contractors

Here are some helpful tips if you want to hire some contractors and avoid worker misclassification issues:

For more tips on hiring the right type of worker, read the post, "Temps Are Making a Comeback. Are They Right for Your Business?"

Tags:

Contractors | Freelancers | Small Business | Small Business Risk Management | Tips for All Small Businesses | Workers' Compensation Insurance

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