Employee vs. Independent Contractor

The Sorgi Insurance CompanyEmployee vs. Independent Contractor

Clients often use terms “independent contractor” and “employee” interchangeably; yet, these terms have significant ramifications upon your daily business activities and claim results. It’s not as simple as are they paid on a 1099 or not. Hopefully the following scenario will help.

For Example:

One of the customers at a nail care facility asked that her toenails be trimmed. Several days after the technician trimmed the customer’s nails, the customer returned to complain, stating that she had developed an infection. The insured states that all of his technicians are instructed how to trim toenails and that they are independent contractors.

There is no clear basis for determining “independent contractor” versus “employee” status and it is necessary to obtain more information. A few of the relevant factors include:

Does the employer provide training?

Is the person paid by the job being done or on an hourly basis?

Can the person work for more than one firm at a time?

Who furnishes the tools or materials needed to do the job?

Can the worker terminate the relationship at any time or must the contract be fulfilled first?

Is the work part of the regular business of the employer?

In the example, the insured believed the technician was an independent contractor because he provided a 1099 rather than a W-2 form. He also had an agreement with the technician that stated she was an independent contractor. Unfortunately, neither of these factors determines employment status. Our insured had established the work hours, provided some training, provided the tools and had a permanent relationship with the technician. The job being done was also part of the employer’s regular business. Our insured had been the technician’s sole employer for years. It was more likely than not that the technician in this case would be considered the insured’s employee, thereby implicating the policy for the customer’s claim.

We hope this helps clarify the age old question of “independent contractor” or “employee.”