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When You Are Misclassified as an Independent Contractor

Workers who are injured on the job are often eligible to seek workers’ compensation benefits for their medical expenses and a portion of their lost wages while they are recovering from their injuries. Workers’ compensation benefits can be a huge financial help while an injured worker is trying to recover and many injured workers and their families depend on these benefits. But only certain types of employees are eligible for workers’ compensation. Some classifications of workers are expressly ineligible for workers’ compensation benefits. One type of worker who is ineligible for workers’ compensation benefits is the independent contractor.

Proper Identification of Worker Status is Important

Whenever a worker is employed by an employer, the employer has a responsibility to properly identify the worker’s employment status. Two broad categories of worker status include employee (both fulltime and part-time) and independent contractor. The employer has different responsibilities and obligations towards each of these two groups of workers. For starters, virtually all employers are required by Georgia law to provide employees with workers’ compensation insurance coverage. Employers do not have the same obligation to provide independent contractors with workers’ compensation insurance coverage under the law.
There are a number of benefits to being classified as an independent contractor. From the independent contractor’s point of view, an independent contractor usually has a more flexible schedule than an employee and often has a lot more autonomy over his or her job duties than an employee does. While the freedoms that come with being an independent contractor can be nice, being classified as an independent contractor has quite a few disadvantages. For instance, a worker that is classified as an independent contractor saves the employer money because employers are not required to provide them with insurance or other benefits, pay overtime compensation to the independent contractor when it is earned, withhold the independent contractor’s taxes, and independent contractors often pay for many things out of their own pocket.
In Georgia, independent contractor status is usually established when the employer can demonstrate that the worker has 1) the freedom to control and direct his or her own work performance, and 2) that the worker is engaged in a traditionally independent trade, business, profession or occupation. Independent contractors are often free to hold employment with multiple employers at the same time.
A lot of factors go into determining whether or not the worker has the freedom to control and direct his or her own work and thus is an independent contractor.  Some pertinent factors include whether the work was of the type normally performed under the supervision of the employer or not, whether the employer provided the tools and/or work location for the work to be performed, how the worker was paid for the work he or she performed for the employer, whether the work is performed as part of the regular business of the employer, and the intent of the parties regarding the employer-worker relationship.
An employer can also demonstrate that a worker is an independent contractor if they can show that the IRS has found that the worker is not an employee through an SS – 8 determination. Demonstrating that a worker is an independent contractor by this second method, often requires that the employer has undergone a Georgia Department of Labor  (GDOL) audit. GDOL audits are typically conducted after there is an instance that a worker is misclassified as an independent contractor, and the GDOL wants to make sure that the business owner is not habitually misclassifying employees as independent contractors to avoid paying taxes and employee benefits for those workers.

The Challenges of Being Misclassified as an Independent Contractor

Things can become difficult for an injured worker who is misclassified as an independent contractor. Being misclassified can deprive the injured employee of the workers’ compensation benefits that he or she is entitled to and most likely desperately needs. Usually the issue of a worker being misclassified as an independent contractor arises when an employer does not know how to appropriately designate a specific employee for payroll purposes. It is unfortunate, but this happens all the time in Atlanta. Misclassification can lead to a lot of headache for the injured worker. Types of employees that are often misclassified as independent contractors include:

  • Sharing-economy or “gig”-economy workers.
  • Call center workers.
  • Delivery drivers.
  • Telemarketers.
  • Cleaning service providers.
  • Night time entertainment workers.
  • Massage therapy workers.
  • TV and cable installers.

Do not let your employer deprive you of the workers’ compensation benefits that you are entitled to by misclassifying you as an independent contractor when you are in fact an employee. If you are an employee, your employer owes a duty to you to provide you with workers’ compensation insurance protection.  If you have been denied workers’ compensation benefits because of your worker classification, you need to speak with an experienced Atlanta workers’ compensation attorney as soon as possible to discuss your specific circumstances.

Why does it matter?

For someone injured on the job, the question of whether they are classified as an employee or an independent contractor is crucial.  Independent contractors are not eligible for workers’ compensation benefits by law.  Furthermore, employees who receive workers’ compensation benefits are not eligible for tort remedies against the same employer, though they may proceed in a separate civil action against another at-fault party if the workers’ compensation payment does not fully cover their damages.

Georgia Legislation

For purposes of workers’ compensation benefits, Georgia statutes establishes specific requirements to determine whether a worker is an independent contractor or an employee.  Under these requirements a person is only an independent contractor if they meet each of the following criteria:

  1. They are a party to a contract intended to create an independent contractor relationship;
  2. They have the right to exercise control over the time, manner, and method of the work to be performed; and
  3. They are paid on a set price per job or per unit basis, not on a salary or hourly wage basis.

As the above list indicates, the key issues are the intent of the parties, control over the details of the work, and the method of compensation.  This means, in short, that the inquiry focuses on the facts and economic realities of the arrangement, not on the employer’s formal designation.  An employer seeking to avoid workers’ compensation liability to an injured worker must show that the arrangement functioned as an independent contractor in fact, not just in name.

Federal Administrative Rules

Part one of this post discussed the state level rules for when a worker is properly classified as an independent contractor as opposed to an employee.  Federal agencies have also weighed in on the subject of employee vs. independent contractor status under the Fair Labor Standards Act.  While these determinations are generally made in contexts other than workers’ compensation claims, they are also useful in resolving disputes over the issue in a workers’ compensation claim.  This post outlines the guidance provided by three federal agencies in particular.

The Internal Revenue Service (IRS)

The IRS will sometimes make a determination when there is a dispute over whether a worker is an employee or an independent contractor.  These inquiries are most frequently made for purposes of determining whether a worker has been properly classified for tax purposes.  However, these determinations may also be relevant if the dispute reemerges in the context of workers’ compensation claims.  The IRS applies a three-pronged test in issuing its decision, assessing behavioral factors, financial factors, and the type of relationship.  These factors share much in common with how other agencies look at the problem.  These factors are paraphrased below

  • Behavioral: The extent of the worker’s control over their own schedule, how the work is done, and where it is done compared with the amount of direct supervision by the company paying the worker.
  • Financial: The extent of a worker’s control over business expenses, whether the worker bears a risk of profit and loss.
  • Type of relationship: The existence or nonexistence of a contract or benefits package, the expectation or lack thereof that the work will continue indefinitely.

For more information see the IRS guidance page.

The Small Business Administration (SBA)

The SBA also provides guidance on the classification issue.  The SBA does not make determinations of these issues or promulgate rules, but it does provide guidance for small businesses.   These factors include (direct quote follows):

  • The extent to which the services rendered are an integral part of the principal’s business;
  • The permanency of the relationship;
  • The amount of the alleged contractor’s investment in facilities and equipment;
  • The nature and degree of control by the principal;
  • The alleged contractor’s opportunities for profit and loss;
  • The amount of initiative, judgment, or foresight in open market competition with others that is required for the success of the claimed independent contractor; and
  • The degree of independent business organization and operation.

For further information, see the SBA’s guidance on the subject, containing the above list and additional information).

Department of Labor

The Federal Department of Labor also provides guidance on the independent contractor/employee distinction.  The Labor Department makes these determinations as part of its mission to enforce the Fair Labor Standards Act.  As with the IRS, these determinations are generally not carried out in the context of workers’ compensation claims.  However, they will be viewed as highly relevant if a dispute over the issue arises.  The Labor Department’s standard for this determination is to assess the “economic realities” of the relationship.  The inquiry considers factors such as:

  • Is the work an integral part of the employer’s business?
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  • How does the worker’s relative investment compare to the employer’s investment?
  • Does the work require special skill or initiative?
  • Is the relationship between the worker and the employer permanent or indefinite?
  • What is the nature and degree of the employer’s control?

More details are available through this Labor Department Guidance Letter (PDF).

All Is Not Lost Even If You Are An Injured Independent Contractor

Even if it is determined that you are an independent contractor and not an employee, you may still have legal recourse if you were injured while on the job.  While you may not be eligible for workers’ compensation benefits, you may on the other hand be able to sue your employer for your injuries through a personal injury lawsuit. You should consult with a personal injury lawyer if this is your situation.

Atlanta Workers’ Compensation Lawyer: Bader Scott Injury Lawyers 

The misclassification of workers as independent contractors is a problem in the Georgia workforce and it deprives workers of employee benefits that they deserve. Many employers inappropriately misclassify workers as independent contractors in order to avoid paying out benefits, overtime compensation and providing insurance for these workers. If you have been injured while on the job and have had your workers’ compensation benefits denied because your employer has misclassified you as an independent contractor, you need to speak with a Georgia workers’ compensation attorney immediately. Please feel free to contact the skilled Atlanta workers’ compensation legal team at Bader Scott Injury Lawyers to discuss your particular situation.

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