The New York State Department of Insurance is cracking down on a practice they consider very common among companies in New York, specifically contractors,  known as Employee Misclassification. Think of this crack down like Cops the TV show but instead it’s the Workers Comp Police and their busting construction sites not Ghetto street corners in Memphis (No offense Memphis).

You Think This Guy Has Worker Comp?

According to an Albany Business Review article written by Michael DeMasi a New York State task force created to examine a perceived  workers compensation problem found 12,300 instances of employee misclassification, which resulted in over $157 Million in unreported wages.  Which in turn equates to ~$92 Million in lost unemployment tax and worker compensation assessment  income to the state.

And if any of you are familiar with the current train wreck that New York’s legislators have spent us into (sorry to get political, but it doesn’t matter Dem, Repub, Indy its obvious our State legislators believe money grows on trees. Wait it does we’ll plant a Federal Reserve Tree on State Street next to the Capital…) then you can see why this money would be a priority.

Why Are They Picking On Contractors?

I know this might sound like Contractor Discrimination but the fact is, last year Contractors were overwhelmingly the industry with the most violations (I don’t know the process for examining so maybe NYS does pick on Contractors, I just don’t know).  From my own experience and from talking to other insurance professionals I do know that there are many misconceptions within the Construction community as to who is a Sub-Contractor, who is a Independent Sub-Contractor, and who is an employee.

Here is a good resource for determining Is He/She Really an Independent Contractor?

The Deal

Whether you like it or not, whether you think its fair or not, New York State is coming after their Workers Comp premiums. So you need to be prepared and start organizing your business and sub-contracting practices so you don’t get hammered with back premiums, fees, and penalties.

At a 10,000 foot level it comes to this:

• If the person is a full or part-time employee YOU owe Comp Premiums
• If the person is a Sub-Contractor who does not have their own Workers Comp YOU own Comp Premiums

Think of it this way, Someone is paying Comp Premiums for ALL Work done and the responsibility trickles up.  Its either going to be you or them, its not going to be nobody…

The Rub

As much as I’m sure you don’t want to hear this I personally think this crack down is a good thing for the Construction industry.  I am hoping by forcing Contractors to play by the rules and pay the premiums due the overall cost of Workers Comp Premiums will come down.  Just like with Health Insurance, where the people who have Insurance pay for the needs of the people that don’t through increased premiums, it is my understanding that Workers Comp is a similar situation.  Insurance Carriers will not need to charge as much premium to each individual company because more premium will be in the system.  Essentially lessening each Contractors individual expense because they won’t have to pay for the people Jobing the system. I’m theorizing… but maybe just dreaming…

I would love to get people’s thoughts on this?

Disclaimer:

This article is for informational purposely only. There is no legal advice being suggested or proffered and the author assumes no responsibility or liability for the actions take or not taken by the readers based upon such information.

Thank you,

Ryan H.

For more information on increasing your insurance acumen, subscribe to the RSS Feed or my Email Newsletter. Follow me on Twitter, connect to me on LinkedIn, or Like the Albany Insurance Professional on Facebook.

If you would like to discuss receiving a proposal for either your personal or business insurance program email me, or call me at (518) 456-6688.

Read my syndicated post on Health Insurance originally published to Under30CEO.com 4 Pieces of Advice on Health Insurance for Entrepreneurs.