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Workers Compensation - Independent Contractors vs. Employee Status

Almost every PIA member agencies provides Workers Compensation (WC) insurance for their small-to-mid-size and self-employed insurance customers. In doing so, most PIA members place...
July 6, 2009

Almost every PIA member agencies provides Workers Compensation (WC) insurance for their small-to-mid-size and self-employed insurance customers.  In doing so, most PIA members place WC insurance for their customers across multi-jurisdictions.

Over the last two decades, the U.S. economy has experienced, and current market economics are further fueling, a sharp increase in the number of workers that declare themselves as and/or are declared as working for others as independent contracted (ICs) workers.  This growth has in many ways out-paced needed adjustments in common, statutory, administrative and enforcement of laws. 

This also means that many persons directly involved with the employee vs. IC issues may not be as up to date in their knowledge, decisions and practices as the pace of this issue demands.

The result is a growing number of work situations where individuals assigned the classification as IC "on the job" when injured are found by WC boards or courts to have been injured while working as "an employee" on the job.  There are many differing and layered reasons why and how these decisions of "misclassification" happen.  PIA members' first-hand rating and claims experience underscores the growing frustration and confusion among their WC insurance customers with these challenges.  An after-the-fact ruling of misclassified "employees as ICs" in a workplace injury, not only means a more expensive WC claim, it can also mean noncompliance penalties for the employer.

The National Conference of Insurance Legislators (NCOIL) is considering a proposed Employee Misclassification Workers' Compensation Coverage Model Act, which is intended to promote transparency, disclosure and accountability in workers' compensation transactions, as well as establish clear criteria to distinguish independent contractors from employees. Many states are working independently on the problem of misclassification, as well.

The PIA National Business Issues Committee Technical Working Group, together with PIA members and affiliates are currently developing comments on the NCOIL working model.  As PIA suggestions and improvements develop, the Business Issues Committee Technical Working Group, together with PIA affiliates will continue to work to achieve better legislative, regulatory and insurance provisions and practices improvements in this area.  To learn more about what the Business Issues Committee Technical Working Group is doing on this issue, please download their June 2009 memo on this issue. To make a comment to the Technical Working Group, please email staff liaison Pat Borowski at patbo@pianet.org.

PIA National Business Issues Committee Technical Working Group June 2009 Memo: Workers Compensation - Independent Contractors vs. Employee Status, NCOIL, NCCI/Statistical Bureaus (Word document)

NCOIL: Employee Misclassification Workers' Compensation Coverage Model Act (PDF)