A couple months ago I wrote you about out-of-state staff i.e., when you have employees in states other than Michigan. Trying to avoid the 27-point test, I broke it down to a few simple points that work in nearly all cases. That article prompted many calls from you, and I think we answered your individual questions. With that topic mostly behind us, the next logical area is “when are my subcontractors (and their employees) MY employees?” Like the complicated list of test questions for an employee’s coverage state, the sub-contactor test is just as complicated and varies widely by state. I will focus on Michigan rules but use a couple other state examples to illustrate the state differences.
First let’s define an independent contractor. This is a person/entity that provides you a service and IS NOT on your company payroll. You do not withhold taxes, pay social security taxes, or provide any of your company employee benefits to them. They act as an independent business. Often their company name is on their truck, they have their own business cards, and they work for other customers besides you and pay their taxes as an independent business enterprise. You send them a 1099 at year end. A short list of frequent services we see independent contractors used for includes: parking lot/sidewalk snow removal, landscape services, sales/manufacturing representative, building painting, roofing, etc.
Second, the independent contractors most often become a disputed/litigated item when the independent contractor is seriously injured. That is when the injured worker, his family and attorney come to MTM and say “Joe” was not an independent contractor of your shop, but rather he was an employee that you did not pay the appropriate taxes and benefits for. These cases do not surface with a minor cut or fall. They come up when there is a serious injury or death. Example you hire a independent sales rep and he dies in a car accident. His family may file a case that he was your employee and should have death benefits under your policy. Another example you hire an independent painter to paint your shop building. Painter falls off a ladder and is severely injured. His family may attempt to say he was your employee and is entitled to the benefits of your employees.
A few first questions can clear this topic up quickly in Michigan:
- Does the sub-contractor give you a certificate of their own workers’ compensation policy? If yes, cross this item off your concern list.
- If the sub-contractor does not have their own workers’ compensation, do you have them sign the Michigan independent contractor declaration form?
- If you do not have 1) or 2), then things move to the second level of protection with these questions.
- Does the individual/entity work for other companies?
- Does the individual provide their own tools, equipment, vehicle?
- Does the individual have their own business cards, business address?
- Does the individual/entity pay their own taxes?
This is not a complete list, but it’s the high points that address the most important issues. The gist: does the independent contractor/entity really operate like an independent/contractor business, or can a judge say this was all a roose to avoid treating this employee as an employee?
As stated at the beginning state independent contractor rules vary widely by state. In California for example, every worker is presumed to have state workers’ compensation coverage. If a worker does not have his own coverage, whoever he is working for at the time of the injury is required to provide the coverage. California courts “search” the line of responsibility to FIND coverage. An uninsured subcontract or who hired an uninsured sub, the sub-contractor can end up with an employer who is surprised how the chain ended at their doorstep. New York and Florida are other states that “look” for coverage when an uninsured sub-contractor is injured.
The above is NOT meant to be a full legal analysis. Hopefully, it will give you a working outline. The MTM office staff and I are anxious to answer any of your questions. Please call us.
With the hectic world we live in, focus on having a wonderful holiday with your family. That will help us all. – John
