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In earlier articles I talked about the legal
obligation employers have to carry workers compensation insurance on
their employees. I explored the severe consequences meted out on those
employers that don’t. Namely, employers who willfully choose not to
carry workers comp on their employees are subject to both criminal and
civil penalties. The employer also loses its immunity from employee
initiated lawsuits. All in all, the downside of non-compliance is
generally unpleasant enough to get most organizations to comply.
An Innocent Mistake?
But what about this situation? Paul the painter needs another painter
to keep pace with all the work he’s lined up. But Paul needs to keep
his costs down to remain competitively priced. He’s afraid that if he
hires Pedro the painter the additional workers comp and employee
benefits he’ll have to pay will cause his costs to skyrocket. Paul
tells Pedro that he just can’t afford to hire him. “No problem,” says
Pedro. Just hire me as an independent contractor. I’ll even sign a
form stating unequivocally that I’m not your employee. “Great idea!”
says Paul. “You’re hired.”
Several months go by and business is
really booming. Pedro has proven to be a valuable asset. Each morning
Paul and Pedro meet. Paul gives Pedro explicit instructions as to what
hours to work, where to work, and how he should do the job. Paul also
supplies Pedro with the paint, spray guns, and other equipment he’ll
need. With the amount of work Paul gives him, Pedro is now working only
for Paul. The situation works so well that Paul does the same thing
with 26 other “independent contractors.”
Trouble in Paradise
One day Pedro is working away high on some scaffolding. His foot slips
on some spilled paint and before he can regain his balance, he goes
hurtling towards the ground below. Fortunately, Pedro only landed on
his back and not his head. And although his injuries are not life
threatening, they are certainly life altering.
Upon admission to the hospital, Pedro is questioned as to how his injury
occurred. He responds that he was injured on the job. Pedro’s hospital
bills add up quickly. He has no heath insurance. In addition to being
in constant pain, he fears that he will also face financial ruin. He is
very concerned about the well being of his wife and 3 children.
Meanwhile, Pedro’s wife Jill contacts Paul. Paul is very sympathetic to
Pedro’s situation but explains to Jill that there is no workers
compensation policy in force because Pedro is an independent
contractor. He even offers to fax Jill the form Pedro signed.
Jill is
absolutely outraged at Paul’s attitude towards her husband. After
seeing Larry the Litigator’s splashy television commercial, she decides
that she means business and calls him. After hearing of Pedro’s plight,
Larry goes on a 10 minute tirade full of righteous indignation. Jill
now feels that not only does she have a case against Paul, she has a
moral obligation to sue so as to protect the world from the other “Pauls”
that are out there lurking.
Rough Justice
So what do you think happens next? Well, given the facts of the case,
here’s what could end up being posted under “Failure to Insure”
Prosecutions on the Pennsylvania Department of Labor and Industry’s
website:
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Paul the Painter, owner of Paul’s Painting in Harrisburg, pled guilty to
27 misdemeanor counts of the third degree on June 1, 2008, in the
Dauphin County Court of Common Pleas for failing to insure its workers’
compensation liability. The judge sentenced Paul to pay the costs of
prosecution and placed him on probation for a period of 27 years. Judge
also ordered Paul to make restitution to the injured employee in the
amount of $173,370. The Bureau’s Compliance Unit reports that Paul’s
Painting is no longer in business.
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Now let’s talk about why you need to keep an eye on this. Obviously, an
incorrectly calculated mod could have a serious impact on your bottom
line. And the shear complexity of the calculation and all the rules and
sub-rules it’s subject to lend itself to error. The PCRB gets your
claims history from your insurance company. All it takes it one comma
or decimal point to be misplaced somewhere in the exchange of data
(throughout a rather complex calculation) for you to be financially
impacted. The figures used in the calculation are readily available
from the PCRB and your insurance carrier. Therefore you may want to
sharpen your pencil and breakout your calculator once a year and double
check the “official numbers”. Doing so could pay big dividends.
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