Indiana law requires every employer to carry worker’s comp insurance for its employees. In certain industries that are high risk for worker injuries, those insurance premiums can be astronomical. Rather than try to make the work environment safer for their workers and reduce injuries, some employers try to reduce those premiums by improperly designating an “employee” as an “independent contractor.” They do this by paying employees as independent contractors (not withholding income, issuing 1099 forms) and not as employees (withholding taxes, issuing W-2 forms).
In my experience, I’ve never had clients complain about that arrangement (after all, they get the whole paycheck!) UNTIL they sustain a work injury. That’s when they find out that the employer won’t provide worker’s compensation benefits. That puts the employee, a so-called “independent contractor,” on the hook for his or her own medical care, and leaves them without any wages while they recover from an injury.
First Things First: You Are Not An Independent Contractor Simply Because Your Employer Doesn’t Withhold Taxes From Your Paycheck
The first thing every Indiana worker should know is this: Just because your employer pays you using a 1099 instead of a W-2 does NOT make you an independent contractor under Indiana Worker’s Compensation law. DO NOT accept the employer’s refusal to provide worker’s comp benefits. You need to educate yourself first.
As I said before, Indiana worker’s compensation law requires businesses to carry worker’s comp insurance for employees, but not independent contractors. In order to prevent unscrupulous businesses from simply calling their employees “independent contractors” by paying them with 1099’s, Indiana’s worker’s comp law and court cases interpreting it provide very strict definitions of “employee” and “independent contractor.”
Indiana’s Worker’s Compensation Act defines an “employee” as “every person, including a minor, in the service of another, under any contract of hire or apprenticeship, written or implied . . . “
The Act goes on to say that a person is an independent contractor, and not an employee, “if the person is an independent contractor under the guidelines of the United States Internal Revenue Service.”
Why refer to IRS guidelines? My guess is that the IRS has a vested interest in making sure that workers who should be qualified as employees are treated like employees, because they have a higher likelihood of collecting income and other employment taxes. Those same concerns have created a comprehensive checklist that has great applicability in Indiana when a question arises between employee/independent contractor.
The IRS Factors To Determining Employee vs. Independent Contractor
In any event, the lesson to this point is this: you’re not an independent contractor simply because your employer doesn’t withhold taxes and pays you on a 1099 basis. You must look to IRS guidelines. Those guidelines are published in the Indiana Code under Section 22-2-15-3. There are twenty-one (21!!) factors to consider. None individually is the sole determining factor, but as you can see, many factors are intuitive. For instance, the following facts suggest you’re actually an employee entitled to worker’s comp no matter what the employer says:
- You’re required to comply with your employer’s instructions about what you do on an hourly or daily basis;
- In-house training is required;
- You and the employer have a continuing relationship, i.e. you’re not hired for a specific job; instead you’re required to go with your employer to whatever job he/she tells you;
- You are told to work a set number of hours each day/week;
- You’re required to work full time for the employer and it prevents you from doing other gainful work;
- Your pay is based on the amount of time you work (i.e. hourly, weekly or monthly), that suggests an employee relationship (as opposed to payment by the job);
- Business or travel expenses are paid by the employer, and
- The employer provides you with the tools and materials you need to do your job;
Case Study – Employee of Roofing Contractor
To understand these factors in action, consider the case discussed in the video above. My client was absolutely undoubtedly injured on the job while working for a roofing contractor. The roofing contractor refused to report his claim to worker’s compensation. The reason given was that my client was paid on a 1099 basis. He essentially told my client “Well I paid him this way so he is obviously an independent contractor.”
As we all know now, how my client was paid is not even a factor in determining independent contractor status! Applying all the factors used by the IRS, in particular the ones listed above, it became evident to me that my client should have been classified as an EMPLOYEE and thus should have received worker’s compensation benefits. After all, my client was told when, where and how long to work, and was using his employer’s equipment. Basically, he was by every imaginable factor an employee EXCEPT for the way he was paid. That case remains pending. We expect to be successful, and if we are, my client’s employer will be liable to pay thousands of dollars in unpaid medical expenses, lost wages (i.e. Temporary Total Disability or TTD), and compensation for his permanent partial impairment (PPI).
What Next if You Really Are an Independent Contractor? A Possible Silver Lining
This blog post is geared toward helping employees determine when they’re improperly classified as independent contractors and thus denied Indiana worker’s compensation benefits. But sometimes, people may actually be independent contractors. What then?
I’ll probably create a larger blog post about this later, but for now, understand that if you are, in fact, an independent contractor, you may not be entitled to worker’s comp benefits from the person or company that hired you, but if that person or company’s negligence contributed to your injury, you may have the right to sue them for your injuries? You lose the immediate benefits of wage replacement and paid-for medical care guaranteed by worker’s compensation, but you are able to unlock recovery for those damages – and more – in the future if you can prove negligence.
Conclusion
It is important for every Indiana worker to understand the difference between employee and independent contractor. If you feel like an employee except for the way you’re paid, you probably are an employee and you shouldn’t allow your employer to deny your worker’s compensation claim. If the factors identified above and in the links provided make you think your employer is mis-classifying you as an independent contractor, please reach out to us at Salmon & Hewins. We represent mis-classified employees all the time. The initial consultation is always free.
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