Change in Law May Make Contractors “Employees”

A change in the Michigan Workers’ Compensation law pertaining to whether your company would be considered an independent contractor’s employer and liable for his/her workers’ compensation benefits could make you vulnerable to unexpected costs. Here’s what you need to know to navigate the new law:

As of January 1st, 2013, the Michigan legislature enacted a 20-factor test to determine if an employer/employee relationship exists for workers’ compensation liability. Contractors can be considered an employee if:

  1. Instructions: your business requires the contractor comply with its instructions about when, where and how the service is to be done.
  2. Training: if your business requires that the contractor perform the job in a particular manner.  An independent contractor will use his/her own methods and should receive no training from your business.
  3. Integration: If the services performed by the contractor are an important part of your business operation. The integration of the two businesses indicates that the contractor is subject to your direction or control
  4. Services rendered personally: if the contractor is required to perform the service personally.
  5. Hiring, Supervision and Paying Assistants: if the business allows the contractor to hire, supervise or pay assistants for the business, unless the contract specifies that the contractor will hire and supervise others.
  6. Continuing relationship: if the business and contractor have an ongoing relationship for the service provided. Even irregular recurring jobs would qualify as an employment relationship.
  7. Set hours of work: if the business requires the contractor to work a set number of hours.
  8. Full time required: if the business requires the contractor to work substantially full time for the business.
  9. Work done on premises: if the business requires that the services being performed are completed on the business’ premises.
  10. Order or sequence test: if the business requires that the services be performed in a certain order.
  11. Oral or written reports: they are required to submit regular reports.
  12. Payments by the hour, week or month: if payment of wages is made on a set schedule as independent contractors are traditionally paid by the job and/or commission.
  13. Payment of business or traveling expenses: if the business pays the contractor’s expenses.
  14. Furnishing tools and material: if the business provides the tools and materials necessary for the contractor to complete the service.
  15. Right to discharge: if the business has the right to discharge the contractor.
  16. Right to terminate: if the contractor has the right to terminate the relationship with the business without incurring liability.

No employment relationship would be presumed if:

  1. Significant investment: if the contractor maintains his or her own office.
  2. Profit or loss: if the contractor can realize a profit or loss by his or her services.
  3. Working for more than one firm at a time: if the contractor performs more than de minims services for other businesses.
  4. Making service available to the general public: if the contractor makes his or her services available to the public on a regular or consistent basis.

These factors are general, which means at least a few will likely apply to your business. The Michigan legislature allows requests for hearings to determine if the contractor performing services is covered with an employment relationship, but this request will likely take too long for services to be relevant. 

The good news, however, is that the workers’ compensation liability for injuries sustained by an independent contractor or his/her employees will only revert back to your business if the contractor doesn’t have workers’ comp insurance of their own. It might be wise to hire independent contractors who can produce a certificate of insurance for workers’ comp and even follow up with a call to their agent to make sure it’s still in effect. 

–Denise L. Clemmons, Esq.
  Law Offices of Charfoos Reiter Hebert P.C.