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New York State has been cracking down severely on workers’ comp fraud. Such fraud creates a serious cost to those working in the contracting, mechanical and construction industries. It raises premiums, increases the cost of claims and creates more overhead for employers. It is vital for employers to know which workers on their site are independent contractors so that you can be sure all claims are valid.

Workers Compensation Disputes

Whenever a worker files a dispute regarding a workers’ comp claim, there are a number of factors that will come into play. It is vital that you know how to identify a true independent contractor when this happens. The courts will not accept excuses such as ignorance of the qualifications.

What is an Independent Contractor?

There are ten criteria for independent contractors in the construction industry. If you have people on your staff who meet all ten criteria, then you are not required to pay workers’ compensation premiums for them. If, however, they fail to meet even a single criterion, failure to pay out may result in audits and penalties.

These ten requirements are as follows:

  1. They must have a Federal EIN from the IRS, or must file self-employment income tax returns for the prior calendar year
  2. They must maintain a separate business establishment
  3. They must perform different work than your primary work, and must work for other employers
  4. They must operate under a clear contract and be responsible for all work performed under that contract. Their success or failure must also relate to the business’ profit or loss
  5. They must carry their own liability insurance policy under their business name
  6. They have ongoing business obligations and liabilities
  7. They have their own advertising, which can include commercials, business cards or listing in the phone book.
  8. They provide their own equipment and materials as specified in their contract
  9. They control their own time and their own means of completing the work
  10. They have their own contract, operating permit or authority.

 Protecting Yourself against Penalties

The best way to protect yourself against audits, penalties and unforeseen expenses is to act with care and stay on top of your responsibilities. Pay your premiums over the course of a year rather than all at once. Be sure that you clarify for any contractors that the above criteria are met in full. If they are not, replace the contractor with one who does meet the standards.

Anyone on your workforce who qualifies as an independent contractor or who may fall into a gray area should purchase their own workers’ comp policy. They should then provide proof of the policy and proof of payment. This will kill two birds with one stone: you will not have to pay premiums, and they will be able to stay on the job.

Have you encountered problems with independent contractors who didn’t meet the criteria? If so, we would like to hear your story. Leave a comment and let us know!