If your Independent Contractor is injured, will you have to pay their Medical costs?

Elliott Stapleton Contracts, Government Compliance

There are advantages to using independent contractors rather than employees. With those advantages comes the risk of the Bureau of Workers’ Compensation (“BWC”) reclassifying an individual as an employee. If an injured worker is determined to be an employee, the business owner becomes responsible for providing workers’ compensation coverage.[1]

Failure to provide workers’ compensation coverage for the employee will result in the business owner paying the BWC for all costs of the injury, including un-provided benefits, as well as other remedies to protect employees.

Classification of Employees versus Independent Contractors

The classification of a worker as either an “employee” or an “independent contractor” is critical for the business owner’s protection when a person is injured while providing services. If the individual is an employee, then that individual is eligible for workers’ compensation.[2]

In Ohio, employers with one or more employees must have workers’ compensation coverage and those with coverage must keep their policy information updated.[3] An employer-employee relationship exists when the person who hires an individual to perform labor or services has the right to exercise control over the manner or means by which the individual performs the labor or services.

The classification of an individual as an employee or an independent contractor is important because businesses owe independent contractors far fewer obligations than employees. In fact, an independent contractor “is not eligible for workers’ compensation…” through the employer.[4]

When Would an Independent Contractor be Re-characterized to an Employee?

When a person is injured while provided services their classification becomes a question submitted to the BWC. The question may be resolved using testimony and each party’s responses to the Independent Contractor/Employee Questionnaire. This questionnaire, containing the 20 factors considered by the court as stated below, can be a helpful tool for determining whether an independent contractor or employer-employee relationship has been formed.

Under Ohio law, a worker is an employee when an “employer-employee” relationship exists between the worker and the person for whom the individual performs services, and it is determined that: (1) the person for whom the services are performed has the right to direct or control the performance of such services; and (2) remuneration is received by the worker for services performed.[5]

Ohio provides a helpful aid to determine whether there is direction or control present.[6]  The degree of importance of each factor varies on the factual context and occupation. The following 20 factors will be considered:

  1. The person is required to comply with instructions from the other contracting party regarding the manner or method of performing services;

If the employer dictates when, where, and how work is done by a worker, this indicates a possible employment relationship by the control of the employer. This is a very important factor evidencing the employer-employee relationship.

 

  1. The person is required by the other contracting party to have particular training;

Employers recommending workers to attend company-provided training suggests an employee-employer relationship because the company is directing the methods by which the employee is to approach their work.

 

  1. The person’s services are integrated into the regular functioning of the other contracting party;

A worker whose labor or services is integrated into the business or significantly affects a business’s success is likely considered an employee.

 

  1. The person is required to perform the work personally

Independent contractors can usually freely assign their work. In contrast, a company that does not allow a worker to assign their work and instead insists on a particular person performing will look more like an employment relationship.

 

  1. The person is hired, supervised, or paid by the other contracting party;

 

  1. A continuing relationship exists between the person and the other contracting party that contemplates continuing or recurring work even if the work is not full time;

A continuous relationship between an employer and a worker is evidence of a possible employer-employee relationship. However, because an independent contractor and an employer’s association may involve an ongoing relationship, the specific facts of the relationship and industry standards help determine the type of relationship.

 

  1. The person’s hours of work are established by the other contracting party;

 

  1. The person is required to devote full time to the business of the other contracting party;

A worker is required to work for an employer full-time is evidence of a company’s control over the individual, which supports a conclusion that an employment relationship exists.

 

  1. The person is required to perform the work on the premises of the other contracting party;

If a worker is required to work on company premises, despite an ability to work at another location, an employment relationship is indicated.

 

  1. The person is required to follow the order of work set by the other contracting party;

 

  1. The person is required to make oral or written reports of progress to the other contracting party;

 

  1. The person is paid for services on a regular basis such as hourly, weekly, or monthly;

Employees are typically paid on an hourly, weekly, or monthly pay schedule; however, there are some situations when hourly, weekly, or monthly payment is used to distribute a lump-sum fee in this manner. Independent contractors are more likely to be paid on a commission basis or upon completion of the project.

 

  1. The person’s expenses are paid for by the other contracting party;

Direct reimbursement of travel and other business costs by a company to a worker suggests an employment relationship, as most independent contractors are responsible for their own costs.

 

  1. The person’s tools and materials are furnished by the other contracting party;

 

  1. The person is provided with the facilities used to perform services;

Many independent contractors own and maintain their own work facilities.

 

  1. The person does not realize a profit or suffer a loss as a result of the services provided;

Employees typically have little chance to realize significant profit or loss through their work and receive predetermined earnings for their work.

 

  1. The person is not performing services for a number of employers at the same time;

It is common for independent contractors to provide services for multiple unrelated companies simultaneously.

 

  1. The person does not make the same services available to the general public;

 

  1. The other contracting party has a right to discharge the person;

The unilateral right to discharge a worker by a company is evidence of an employment relationship. Generally, the ability to discharge an independent contractor depends on contract terms.

 

  1. The person has the right to end the relationship with the other contracting party without incurring liability pursuant to an employment contract or agreement.

Most employees can unilaterally terminate their work for a company without liability. However, except as authorized by contract, independent contractors cannot terminate services without liability.

When at least 10 of the 20 elements are met, the worker may be defined as an employee. If the threshold is not met, the worker may be treated as an independent contractor.

This is a “right-to-control” test and is designed to evaluate who controls the work being performed. The more control being exercised by the company over the worker or work being performed, the more likely the worker would be considered an employee for the purposes of workers’ compensation.

Avoiding Reclassification and Executing an Independent Contractor Agreement

In order to shield a business from the expenses associated with the reclassification of workers, employers should be diligent in reviewing their relationship with their independent contractors. A well-drafted independent contractor agreement, which includes consideration of the factors listed above, will support the existence of an independent contractor relationship and limit a business owner’s risk of paying the medical costs of a contractor and BWC penalties.

[1] Ohio Revised Code (“O.R.C.”) § 4123.01(A)

[2] Ohio Administrative Code (“O.A.C.”) § 145-1-42(A)(1)(c)

[3] O.R.C. § 4123.01(A)

[4] O.A.C. § 145-1-42(A)(2)(c)

[5] O.A.C. § 4141-3-05(A)

[6]See O.R.C. § 4123.01(A)(1)(c); See also O.A.C. § 4141-3-05(B)

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About the Author

Elliott Stapleton

Elliott is a partner in the firm of Cornetet, Meyer, Rush and Stapleton serving clients throughout Ohio. Elliott's business clients range from small single member companies to large privately held businesses. His firm provides legal services which include advice on Business Formation and Transactions, Real Estate Transactions, Trademark Law, Copyright Law, Estate Planning, Trust Administration, Probate Administration, and Succession Planning.