Under New York State law, a for-profit business is exempt from obtaining and maintaining a workers’ compensation insurance policy if one of the following applies:
- The business is owned by one individual with no employees, no leased employees, no borrowed employees, no part-time employees, no unpaid volunteers (including family members) and no subcontractors, and is not a corporation; or
- The business is a partnership under the laws of New York State, and there are no leased employees, no borrowed employees, no part-time employees, no unpaid volunteers (including family members) and no subcontractors, and is not a corporation; or
- The business is a one-or-two person owned corporation, with those individuals owning all of the stock and holding all offices of the corporation and there are no employees, no leased employees, no borrowed employees, no part-time employees, no unpaid volunteers (including family members) and no subcontractors. Specifically, if two people own the corporation, each person must own at least one share of stock and between them own all of the shares of stock in the corporation. In addition, they must both be corporate officers and between the two of them hold all of the offices of the corporation.
Finally, if you have one or more employees for thirty (30) days in a calendar year, you are required to obtain New York State disability benefits insurance coverage, which covers employees for off-the-job injuries and illnesses. Such insurance must be effective no later than four weeks after the 30th day you have employees, unless you purchased a business whose employees had already been covered by the Disability Benefits Law. In that case, the effective date of coverage must be no later than the day you purchased the business.
Many small firms do not have any employees, but instead utilize the services of independent contractors, subcontractors and consultants. As a result, they do not purchase workers’ compensation and disability benefits insurance. While many times this is fine, if you utilize such “non-employee” labor, it is imperative that you make sure you are not “misclassifying” these individuals. Failure to carry workers’ compensation and/or disability benefits insurance carries heavy fines, as well as the possibility of criminal prosecution.
Many factors are used to determine if an individual is an employee, as opposed to an independent contractor, for purposes of workers’ compensation insurance. These factors include, but are not necessarily limited to, the following:
- The right to control the manner in which the work is to be performed. If you control the time, manner and place in which the individual is performing the work, that person may very well be an employee and not an independent contractor;
- Character of work is the same as the Employer. If the work being performed is consistent with the primary work performed by your company, that indicates that the work is being performed as an employee, and not an independent contractor;
- Method of Payment. Employees tend to be paid wages on an hourly, daily, weekly, monthly or yearly basis. Being paid per project is indicative of an independent contractor relationship;
- Furnishing Equipment/Materials. A business providing the equipment and/or materials used by people performing the work tends to indicate an employer-employee relationship;
- Right to hire/fire. A business retaining the right to hire/fire the individuals performing the work is evidence that the person(s) performing the work is an employee. Independent contractors retain control over the time when the work is to be performed and the methods of performing it. Obviously, if the end result is not acceptable to your business you may terminate your relationship with the independent contractor, but if you do so based on the fact that the individual is not working when and how you want him/her to, that indicates that he/she is actually an employee.
All these factors are considered by a workers’ compensation law judge, and no one factor is dispositive.
Note: Under the 2010 Construction Industry Fair Play Act, an individual who performs services for a company in the construction industry is an employee unless:
- He/she is free from direction and control in performing your job, AND
- He/she performs work that is not part of the usual work done by the business that hired him/her, AND
- He/she has an independently established business. There is a twelve (12) factor test used to determine whether the subcontractor has an independently established business.
You cannot consider the individual worker to be an independent contractor unless all three of these facts apply to your work.
Finally, if you have subcontractors, it is imperative that you check to make sure the subcontractor has a valid workers’ compensation insurance policy. If it does not, you, as the principal contractor, are liable to your subcontractor’s employees in case of an on-the-job injury or illness.
For more information regarding the classification of workers, feel free to contact my office at (516) 745-9000.