By Jack Grieco
The Alaska Legislature adopted a number of workers’ compensation reforms in 2018. One reform provides additional tests to determine if a person is an independent contractor or an employee. We are seeing a number of cases where the workers’ compensation auditors have determined a person is an employee because they did not meet these NEW requirements. This could be costly and cost you an additional premium. You could also be required to provide workers’ compensation coverage if someone is injured on your job site and has no other insurance. You could also be sued for negligence if a person is severely injured and has no workers’ compensation coverage. Individual healthcare plans often exclude job related injuries. There is no substitute for workers’ compensation.
Please review these definitions and be sure that your independent contractors are compliant. The best way to avoid having an independent contractor picked up as an employee on your workers’ compensation, to avoid having a claim against your workers’ compensation because of an injury, or to avoid a lawsuit for a third party over claim by a sub-contractor, is to have all sub-contractors provide workers’ compensation for every one of their employees on the job including the owners.
The New Definitions
Workers’ Compensation does not apply to Independent Contractors. A person is an independent contractor for the purposes of this section only if the person:
(A) has an express contract to perform the services; [A written contract, not a PO, is best. It should include insurance requirements for that person/company to have in force and provide additional insured status to you.]
(B) is free from direction and control over the means and manner of providing services, subject only to the right of the individual for whom, or entity for which, the services are provided to specify the desired results, completion schedule, or range of work hours, or to monitor the work for compliance with contract plans and specifications, or federal, state, or municipal law;
(C) incurs most of the expenses for tools, labor, and other operational costs necessary to perform the services, except that materials and equipment may be supplied;
(D) has an opportunity for profit and loss as a result of the services performed for the other individual or entity;
(E) is free to hire and fire employees to help perform the services for the contracted work;
(F) has all business, trade, or professional licenses required by federal, state, or municipal authorities for a business or individual engaging in the same type of services as the person;
(G) follows federal Internal Revenue Service requirements by
(i) obtaining an employer identification number, if required;
(ii) filing business or self-employment tax returns for the previous tax year to report profit or income earned for the same type of services provided under the contract; or
(iii) intending to file business or self-employment tax returns for the current tax year to report profit or income earned for the same type of services provided under the contract if the person’s business was not operating in the previous tax year; and
(H) meets at least two of the following criteria:
(i) the person is responsible for the satisfactory completion of services that the person has contracted to perform and is subject to liability for a failure to complete the contracted work, or maintains liability insurance or other insurance policies necessary to protect the employees, financial interests, and customers of the person’s business;
(ii) the person maintains a business location or a business mailing address separate from the location of the individual for whom, or the entity for which, the services are performed;
(iii) the person provides contracted services for two or more different customers within a 12-month period or engages in any kind of business advertising, solicitation, or other marketing efforts reasonably calculated to obtain new contracts to provide 3 similar services.
Please contact RISQ Consulting if you have any questions about independent contractors, workers’ compensation, or how to craft the insurance requirements section of your company contract. Remember that the best way to avoid potential issues is to have all of your independent contractors provide workers’ compensation for their employees and themselves.