From a workers’ compensation perspective, a mislabeled independent contractor can be a very costly mistake. Some small business owners choose to pay for workers’ compensation coverage only on themselves, and hire “independent contractors” to do their work. If the owner gets hurt, there is coverage; but if a worker gets hurt, there is no coverage. Workers’ compensation coverage does not extend to independent contractors in Ohio; therefore, each independent contractor should maintain their own workers’ compensation policy. Unfortunately, this rarely happens; and if the worker is misclassified, the consequences can be severe for the employer.
It seems easy enough – simply label a worker as an independent contractor, give them a 1099 instead of a W2, and maybe even make the worker sign an “independent contractor agreement”. The employer assumes this is enough and now they can avoid the hassle and expense of withholding taxes, providing healthcare benefits, and maintaining unemployment and workers’ compensation coverage by labeling a worker as an “independent contractor”. It’s an easy way to avoid expensive problems, right?
Wrong. If an individual who is labeled an “independent contractor” sustains a workplace injury, and failed to pay for their own workers’ compensation policy, the injured worker could face a mountain of unexpected medical bills. Some injured workers start to question whether they were ever an independent contractor in the first place. The Industrial Commission of Ohio will become the ultimate arbiter regarding the correct classification.
The “definition” of an independent contractor is shockingly nebulous and subject to interpretation. Both the IRS and the Industrial Commission of Ohio utilize 20 different factors when considering whether an individual is an employee or an independent contractor. The analysis is anything but straightforward, but an employer can start by analyzing the issues considered in the Ohio BWC Independent Contractor/Employee Questionnaire.