How To Avoid Unemployment/Workers’ Compensation Claims From Independent Contractors

The unemployment compensation and Workers’ compensation lawyers at Marsh Law recognize that independent contractors make up a huge portion of the workforce these days, and with good reason. An independent contractor relationship can often benefit both the business and the contractors themselves. While independent contractors are given relative freedom over managing their own schedules, businesses get to avoid the large taxes, expenses, and liabilities associated with hiring actual employees. However, in the unfortunate event that a Workers’ compensation or unemployment claim is brought forward by an independent contractor, this relationship can prove to be just as complicated as it is beneficial.

How Independent Contractors Receive Unemployment/Workers’ Compensation

As labor lawyers in Pennsylvania know, when it comes to truly independent contractors, there should be no employment taxes, no Workers’ compensation coverage, no unemployment compensation, and generally, no real employment relationship. However, independent contractors may still apply for unemployment compensation following termination or after a job site accident, and there is a chance those benefits will be granted. It’s as simple as a company somehow missing a claim and not disputing it, and even if your company does dispute it, you can still lose out if you weren’t careful enough to distinctly define the roles of independent contractors versus employees. For this reason, it is imperative for business owners to have a written agreement in support of the independent contractor status.

Avoid Issues by Working with a PA Unemployment/Workers’ Compensation Attorney

As expected, there are a number of challenges an employer can face when disputing an unemployment or Workers’ compensation claim. While many of these issues revolve around not having a proper independent contractor subcontractor agreement, there are also some that can lead to serious legal trouble. Consider the following before making a mistake that leaves you paying for false unemployment compensation.

Employer Liabilities of Not Having a Subcontractor Agreement

As experienced labor attorneys, Marsh Law has seen numerous claims specifically for employers in the construction industry. The “Construction Workplace Misclassification Act” from the Pennsylvania Department of Labor and Industry is used to define what it means to be an independent contractor and how that relates to Workers’ compensation and unemployment claims. It also emphasizes the absolute importance of having a written agreement with your independent contractors. The absence of a written agreement alone will default the relationship to one of employer-employee status, regardless of who else employs the contractor, and regardless of whether he or she uses their own tools, truck, schedule, etc. 

Part of what Marsh Law does for our clients is to provide a master subcontractor agreement and work order form that you can use with your independent contractors on each new project. Choosing to not utilize these agreements can create a huge liability for employers, which we have experienced in the past. A large portion of this agreement revolves around requiring the subcontractor to have at least $50,000 in liability insurance. The reasoning behind this is that Pennsylvania also requires it, which means it can often aid in making the distinction between independent contractors and employees. 

The lack of this insurance will likely render the person in question an employee, regardless of any written agreements or contracts favoring independent contractor status. In fact, many unemployment tests are weighted in favor of finding employment status. Even with the required liability insurance and a written agreement, it is important to be sure that any other variables support an independent contractor status.

Employer Faces Liability Charges for Recharacterizing a Worker’s Status

Unemployment and Workers’ compensation attorneys will tell you that it is an equally important responsibility of the employer to ensure that they are not abusing the “independent contractor” label and to not recharacterize a worker’s status, unintentionally or otherwise. This is due to the amount of risk associated with recharacterizing a worker’s status, which includes potential criminal liability.

The claim doesn’t even need to be a large one; just a small monetary amount in wrongful unemployment benefits can lead to serious repercussions with national agencies, including the Internal Revenue Service, the Social Security Administration, the United States Department of Labor, OSHA, and others. Questions regarding the characterization of worker statuses occur frequently enough that unemployment and Workers’ compensation lawyers recommend always considering the strength of master subcontractor agreements. Also worth considering are the civil liabilities associated with injuries caused or sustained by your Workers’, and how different that can be for independent contractors versus employees. Generally, just be sure to always be aware of the potential repercussions of contesting, or not contesting, unemployment or Workers’ compensation claims.

Additional Variables Regarding Unemployment/Workers’ Compensation for Independent Contractors 

Unemployment and Workers’ compensation lawyers often see claims from independent contractors go to court. In these scenarios, there are a number of factors outside of a written agreement and liability insurance that the court will be looking at. 

  • Does the worker have their own tools?
  • Are they given work directions from you, or are they free to take control of their own projects?
  • Do they use their own vehicles?
  • Do they receive the majority of their income from you? 

These are some of the most common questions that can determine whether or not an independent contractor is successful in claiming Workers’ compensation or unemployment benefits.

Marsh Law Protects You from Improper Unemployment/Workers’ Compensation Claims

Again, the unemployment and Workers’ compensation lawyers at Marsh Law provide these agreements to many of our employer clients. If you have a master subcontractor agreement and work order forms, do not let them go to waste. If you work with people you believe to be subcontractors and need these documents, our company will be happy to supply them to you at a reasonable fee. Contact Marsh Law today to protect yourself from the Workers’ compensation and unemployment claims of independent contractors.

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