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Workers’ Comp Employee Misclassification a Costly Mistake

Workers’ Comp Employee Misclassification a Costly MistakeEmployers in almost every state are required to purchase workers’ compensation insurance to provide benefits to employees who become sick or injured due to their jobs. Workers’ compensation statutes are meant to protect both sides – employees receive benefits for workplace accidents or injuries regardless of fault, and in return employers have some amount of protection from lawsuits brought on by employees seeking monetary damages for work-related injury or illness.

Employers with less than a certain number of employees, or who employ a certain type or classification of worker, may be exempt from workers’ compensation statutes, and thus not required to purchase coverage. For example, employers are not usually required to provide workers’ comp insurance to workers who are classified as independent contractors. However, the question of whether a worker should be classified as an independent contractor or an employee is one that is often debated.

When a worker is misclassified and a lawsuit is decided in their favor, it can be costly for the employer. Judgements are decided on a case-by-case basis, and courts consider certain factors when making a decision. Those factors can include:

  • Whether the employer controls or has the right to control what the worker does and how the worker does their job.
  • Whether or not there are employee-type benefits available for the worker such as a pension plan, other types of insurance or vacation pay.
  • Whether or not all of the business aspects of the worker’s job are controlled by the employer, such as how and when the worker is paid, if expenses are reimbursed, and who supplies are provided by.

More often than not, courts tend to interpret the definition of “employee” very broadly, and decisions often favor workers over employers.

To help your workers’ compensation clients avoid misclassification of employees, it’s important to make sure that the information reported on their insurance application accurately describes their business operation – including proper classification of employees. Not only can misclassification result in fines for the client. In some cases, the insurance agency may be liable as well; if it can be proved that the misclassification was due to an error or omission on the agency’s part.

Employee misclassifications are common, and if not caught before an accident or injury happens, the mistake can be costly for employers and insurance agencies. However, by taking steps to be proactive, knowing what to look for on client applications and working with experts in Workers’ compensation solutions, you can help reduce the likelihood of future misclassification claims.

About ASIA Workers’ Compensation

Associated Specialty Insurance Agency, Inc. has been “The Workers’ Compensation Specialist for Brokers and Agents” for the past two decades and is committed to providing brokers and insurance agents across the East Coast with expertise and services to develop a Workers’ Compensation policy. For more information about how we can assist you with claims management, anti-fraud measures, and more call (610) 543-5510 to speak with one of our professionals.

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