Oswald Comments on Workers Comp as it relates to IC’s
Workers Compensation for Independent Contractors
Over the years, many courier companies have been reluctant to purchase Workers Compensation coverage, in the name of their company, for the purpose of protecting themselves from claims brought on by their Independent Contractors. Courier companies have always felt that this structure could be used against them in an argument to reclassify these IC’s as employees. That is not necessarily the case. In fact, you, as the courier company, will likely strengthen your case to establish the IC’s as true independents by purchasing Workers Comp and charging the IC’s for the premium. This method is not permitted in all states, check with us to see if your state will permit it.
As you all know, the independent contractor model has been under scrutiny and this will only intensify with the new administration. This leaves courier companies in a very difficult position to obtain Workers Compensation if the industry has to switch to an employee model. The issues that will make it difficult to obtain Workers Compensation are the class of business, no prior Workers Compensation history and the hardening insurance market.
Your primary concern with this structure may be the cost, but it may be more cost effective than you think. In most states, companies utilizing IC’s can use 1/3 of the driver’s settlement checks as the basis for rating. The carriers assume 2/3 of what the IC’s are paid is reimbursement for expenses. In your home state, this may make the Workers Comp rates equal to or less than the Occupational Accident rates that are currently available.
You may currently have an Occupational Accident program in place for your IC’s. But, unless it’s a stand alone policy with One Beacon or through the third party IC management company, SCI, you are very likely running the risk of a Workers Comp premium audit.
Let’s assume your W-2 employees are covered by a Workers Comp policy. The Workers Comp carrier will not recognize the Occupational Accident coverage as a substitute for Workers Compensation. The IC’s will be considered uninsured sub-contractors. You may get by for years without being audited or the audit is just a self reporting audit that you mail in. However, a sure thing to trigger a physical audit is when an IC gets injured and attempts to be reclassified as an employee for the purpose of making a Workers Comp claim. Triggering a physical audit is bad enough, what’s worse is that the insurance company has the ability to go back three years!
The proactive approach is to purchase a Workers Comp policy now and not worry about any potential audits, driver reclassification attempts, or whether or not you will be able to purchase a Workers Comp policy in the future. As a courier owner, you will certainly be able to sleep better at night knowing these potential risks have been properly addressed.
For more information on Worker’s Compensation and other Independent Contractor issues contact us today!