A Very Sad Story

Several days ago I was reading a news article on the Internet. It told of a 19 year old young man who went to work for a Tree Service Company in North Carolina. On his first day of work he was given the job of putting tree limbs and other tree debris into the wood chipper for disposal. He somehow became entangled in the tree limbs and was sucked into the wood chipper. He died immediately. Upon hearing of the young man’s death, the owner of the tree service company had a heart attack. The owner survived and later told the newspaper in his statement that the young man was classified as a subcontractor (independent contractor) working for his company when the incident occurred…..  But was he really an independent contractor, or should he have been classified as an employee?

All States have Worker’s Compensation (W.C.) laws. Each one varies a little from the others. For this discussion I will concentrate on North and South Carolina laws. North Carolina requires employers to carry W.C. insurance coverage if the company has 3 or more employees. South Carolina requires employers to carry W.C. insurance coverage if the company has 4 or more employees. Both State laws require that when a worker dies from an injury due to an accident which occurs within the course of employment, there is a statutory method and amount for the distribution of that employee’s W.C. death benefit compensation. Both North and South Carolina law provides that upon the death of an employee from an accident, the employer shall (usually through the worker’s compensation insurance carrier) cause to be paid 500 weeks of compensation, at the rate of  66 2/3% of the employee’s weekly wage. North Carolina also stipulates that an additional $10,000 be paid to cover burial expenses. South Carolina requires an additional $2,500 for burial expenses. However none of this applies if the individual was truly an independent contractor…….. But was he really an independent contractor, or should he have been classified as an employee?

On July 15, 2015, the United States Department of Labor (DOL) issued a 15-page memorandum, Administrator’s Interpretation #2015-1, which includes new standards that significantly narrow the ability for employers to classify individuals as “independent contractors”. Under this interpretation most workers will be classified as “employees” under the Fair Labor Standards Act (FLSA). In the memorandum the DOL details an “Economic Realities Test” that must be used to determine whether the worker is economically dependent on the employer (and thus an employee) or is he really in business for himself (and thus is an independent contractor). The subjective nature of the DOL’s interpretation creates substantial challenges for companies who wish to maintain their independent contractor relationships.

According to the DOL, for each independent contractor relationship, employers should look at the following six factors.

1. The extent to which the work being performed by the independent contractor is an integral part of the employer’s business. If the worker is performing the same work that the company is in the business of providing, then the worker is probably an employee.
2. The worker’s opportunity for profit or loss depending on his or her managerial skills. A worker who has the opportunity to hire others or purchase equipment and materials in order to increase his own profits is more likely to be considered to be an independent contractor.
3. The extent of the relative investments of the employer and the worker. Workers should make some "significant" investments in their business in order to be considered an independent contractor who is in business for themselves.
4. Whether the work to be performed requires special skills and initiative. A worker’s business skills, judgment and initiative, not his technical skills, will aid in determining whether the worker is economically independent. Independent contractors have the opportunity to make a profit or to incur a loss.
5. The permanency of the relationship. A long term relationship between the employer and the worker indicates that the worker is an employee. Typically, an independent contractor works one project for an employer and then moves on to another contract for another employer.
6. The degree of control exercised by the employer over the worker. Independent contractors must control meaningful aspects of the work to be performed such that it is possible to view the worker as a person who is conducting his own business.

The profile of a typical Independent Contractor would look something like this:
He/she is in business for him/herself and has/does the following:

• Business Cards.
• Marketing materials.
• Web site/Facebook page.
• Incorporation.
• City/county business license.
• Membership in business/community organizations.
• Liability insurance.
• An established office with needed materials.
• Works for a variety of businesses and organizations.
• Submits contracts for work to be accomplished.
• Is paid when the contract is completed.
• Works at his desired time and location using his own methods and materials.
• Has the very real possibility of making a profit or incurring a loss.

Anything short of this is an EMPLOYEE.

So the question remains. Was this young man an Independent Contractor, or should he have been classified as an employee and therefore eligible to receive his worker’s compensation death benefits?

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Paul Hilton is a certified Human Resources Consultant, located in Columbia, SC.
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