There is a fair amount
of discussion in the news about Florida and "insurance fraud" or
"workers' compensation fraud." Some of the discussion has been
stimulated by the discussion of 440.105 and the Brock and Hector cases. Some of the discussion comes
from the misclassification issue that is involved with independent
contractors and employees alike.
Misclassification is the
term generally applied when worker status is misrepresented to the insurance
carrier that will ultimately be responsible for any accident or illness through
workers' compensation. It can be a collusive effort between multiple parties or
an effort of the employer alone. It has become a part of our workers'
compensation world.
Because workers'
compensation is what we do, many of us tend to focus on this industry when we
perceive an issue. Certainly, misclassification is an issue that profoundly
affects workers' compensation. However, like so much with workers'
compensation, this problem sometimes only comes to light when the worst happens, an
accident.
Misclassification is a
far broader issue for workers and the economy generally. A misclassified worker
may not receive the wages to which an employee is entitled. Payment to a
misclassified worker may not be accompanied by the appropriate tax payments or
unemployment compensation premiums/taxes. While misclassification affects
workers who are hurt in our specific context, it affects all misclassified
workers in these broader perspectives.
To understand
misclassification, we have to understand something of workers' compensation and
how it is designed to distribute costs of work injuries to the industries in
which they occur. Some occupations are more dangerous than others. In deciding
which are the "most" dangerous, one would need criteria.
One measure might be the
occupations in which the most work fatalities occur. The Bureau of Labor
Statistics tracks this metric. As reported in Forbes, the most dangerous jobs based on
fatality occurrence are (the following quoted from Forbes)
1. Logging workers
2. Fishers and fishing
workers
3. Aircraft pilot and
flight engineers
4. Roofers
5. Structural iron and
steel workers
6. Refuse and recyclable
material collectors
7. Electrical power-line
installers and repairers
8. Drivers/sales workers
and truck drivers
9. Farmers, ranchers,
and other agricultural manages
10. Construction
laborers
Judges did not make the
list. So, logically, a company might charge less premium to insure liability
for injury to a judge than for liability regarding a logging worker. In fact,
workers' compensation premiums are calculated with multiple variables considered.
One is usually the occupation of those who are covered. The rate charged is
higher for occupations with a higher risk of injury; it logically costs more to insure
loggers than judges.
Another variable of
premium charges is "experience." A company whose employees tend to
have accidents will likely pay more for workers' compensation coverage than a
company with a great safety record and few or no reported claims. A company with few employees and most of its labor performed by "independent contractors" may avoid the "experience" of accidents, and thus maintain lower premium costs for those who are listed as "employees."
Misclassification can
involve the employer hiring someone to perform tasks or labor, but not as
an employee. The person is hired but as an "independent contractor."
This employment relationship means less bookkeeping for the employer, and relieves
the employer from payment of the "matching" social security tax
contribution, and unemployment taxes. Since the worker is not an
"employee," the worker is not covered by the employer's workers'
compensation. If the worker is thus "self-employed" and has no
employees, she or he may not be required to have her/his own workers'
compensation policy. She or he may have no coverage for an accident.
Misclassification can
also be an accounting practice. An employer might seek a lower workers'
compensation premium by listing its employees in an occupation that is seen as
less risky. For example, a logging company might list its employees as
"clerical" workers in reporting its payroll to the insurance company.
An insurance company could rely on that representation in calculating premiums,
believing that the employer's workers are bookkeepers, secretaries, estimators,
etc. instead of people who actually cut down trees.
Misclassification may be
caught when that workers' compensation insurer performs a payroll audit. The
Florida Division of Workers' Compensation also performs audits and inspections
in which such misclassification can be discovered. But recently, the news is about a new partnership between
the Florida Department of Revenue and the U.S. Department of Labor.
They announced their
collaboration in January. Their efforts will be primarily focused on the
characterization of workers as "independent contractors." The press
release reports that in 2013 "investigations resulted in more than
$83,051,159 in back wages for more than 108,050 workers in industries such as
janitorial, food, construction, hospitality and garment." Florida does
have a concentration of construction, food, and hospitality industries.
The efforts at
misclassification may be focused on reducing or eliminating the cost of workers'
compensation coverage. Those efforts may as likely be focused on avoiding taxes
and other regulations. The additional focus brought to the subject by this new
partnership may help Florida to better address the issues of
misclassification.
