Workers Compensation & Owner Operators | Intermodal Insurance ...

By Jason Stevenson in Industry News

The systems that determine the necessity of workers compensation coverage are as varied as the states in the Union. Every state?s rules are unique. Many companies believe that simply making someone an ?independent contractor? by agreeing to pay them with a 1099 settles it ? ?they?re independent and their comp is their responsibility?. Actually, nothing could be further from the truth. The main issue with this reasoning is that a 1099 is an IRS tax form number and is designed for independent contractors based on the IRS? definition of such ? which of course has no bearing whatsoever on any state?s board of insurance or work comp?s definition of an ?independent contractor?. In fact, most states very specifically define the difference between an employee and an independent contractor twice ? once for their tax purposes and once for workers compensation. So, if you?re counting ? I?m up to 101 independent definitions (2 in each state and one from the IRS) for an independent contractor ? each with no bearing on any of the others.

In Ohio a worker is required to be covered by workers compensation if the meet they ?any ten of the following test?. This is a list of items that if your employees meet ten of the twenty items listed ? you?re required as an employer to provide workers compensation.

The state of New York, for instance, has a specific example stating, ???owner operators? are generally considered employees of [a company] under the Workers Compensation Law because [a company] maintains control over the method and manner of these services.?

On the other end of the spectrum, Texas actually allows employers to opt out of offering workers comp altogether.

And, as you might expect, each state will enforce its regulations with differing levels of force.

So, what to do? Good question?

Whether or not an owner-operator is/should be covered under workers compensation is something we discuss often with clients. The issue is complicated and since each state has different requirements, there is no one consistent answer.

Adding to the confusion is the availability of an insurance option known as occupational accident coverage. Occupational accident coverage is a combination of supplemental benefits, disability, health insurance, and workers comp-like injury coverage, but it rarely meets a state?s workers compensation requirements and laws.

Heavy Duty Trucking Magazine wrote an article on just this topic. While the article is a few years old, its basic tenants continue to ring true. The article highlights the reasons owner-operators are considered employees and why worker?s compensation should be purchased for them.

Workers Comp & Owner-Operators ? Heavy Duty Trucking

In most states, workers compensation is elective for sole proprietors or self-employed persons, but attorneys and insurance experts warn against assuming you have no liability just because your drivers are independent contractors.

As part of a recent teleconference on owner-operator insurance and indemnification sponsored by the Truckload Carriers Assn., Greg Feary, an attorney with Scopelitis, Garvin, Light & Hanson, offered a general overview of independent contractor and workers comp issues. As he emphasized, there is no single federal body governing workers compensation. Each state has its own statutes. Moreover, claims are often determined on a case-by-case basis.

Many of those cases hinge on whether or not a driver is an employee or independent contractor. In some states, workers comp statutes do classify owner-operators as independent contractors. Unfortunately, says Feary, the laws are not uniform and many contain loopholes.

For instance, some state statutes seem to apply to owner-operators and to any drivers they hire. Others limit the rule to owner-operators only. In Alabama the statute applies to ?common? carriers that use owner-operators, but there is some question as to whether it applies to contract or exempt carriers.

States that don?t specifically address owner-operators by statute often rely on the ?right of control? test for workers comp claims. In general, courts and workers comp officials look at how much control the carrier exercises over the daily activities of the owner-operator. But other factors can come into play, such as whether or not the owner-operator has a substantial investment in the business or equipment, and whether or not the owner-operator has the right to turn down work.

The question of workers comp liability becomes even trickier when owner-operators hire drivers of their own. In most states a general contractor is responsible for workers comp coverage for employees of a subcontractor. When a fleet operator is hauling freight under another carrier?s authority, the carrier is generally considered to be the general contractor and the fleet operator is the subcontractor. So if one of the fleet operator?s drivers is injured on the job, the workers comp claim could ultimately be made against the carrier.

Some states make workers comp optional for very small companies, usually those with fewer than three or sometimes five employees. Feary said the small employer exemption may apply in contractor/subcontractor situations, but only in the states that have such a rule.

He also warned that fleet operators will sometimes attempt to establish an independent contractor arrangement with drivers hired to operate their equipment. Even when there?s a written contract between the fleet operator and the driver, courts tend to view this as a device to circumvent workers comp or other employee obligations ? especially when the driver doesn?t provide the truck.

One solution to potential owner-operator claims is to include them in workers comp insurance programs for company drivers and other employees. But if the carrier pays the premiums for owner-operators, it jeopardizes the independent contractor status and increases exposure to unemployment claims.

Passing the premium costs to owner-operators may violate federal leasing regulations which prohibit carriers from requiring that independent contractors buy services from the carrier or its authorized supplier. Carrier-sponsored programs can be offered, but they must be optional.

In general, the best course seems to be a contractual requirement that owner-operators have either workers compensation or occupational accident insurance. Since occupational accident programs vary widely, it?s also a good idea to establish some general benefit requirements.

The Bottom Line: This is a complicated issue. And, it?s not getting any less complicated any time soon. Depending on your home state(s), the discussion you have with your insurance agency about workers compensation will differ. At the end of the day every state?s rules vary ? work comp rules aren?t federal and there isn?t a single, simple answer. Discuss your situation with a qualified, trucking specific, insurance professional sooner than later because if you?re handling this improperly the penalties are severe.

Hopefully you?ll check back soon to see our regular updates. And always, if you have any questions for the Truck Insurance Pro?please just let us know and we?ll get back to you ASAP!

Keep on Rollin?!

Jason Stevenson
Vice President ? Transportation Services

Truck Insurance Pro
The Hoffman Group ? Transportation Services Division
800.826.4006
jstevenson@thehoffmangrp.com

http://www.truckinsurancepro.com/industry-news/workers-compensation-owner-operators/

Source: http://www.intermodalinsco.com/2013/03/20/workers-compensation-owner-operators/

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