Why You Can’t Afford Not To Have Employees, From the Insurance Company’s Mouth
Every day you are using Independent Contractors in your business, you are taking a risk.
There. I said it and I really mean it. I know, I know, you are sick and tired of hearing this debate. But this is different. Why? Dennis Stowers, insurance agent for pet sitters, from Mourer-Foster explained all the below to me, and approved this article. So this isn’t just me typing away. Are you ready?
So, you are a business owner , you consider your staff IC’s,and you get to pay your staff 9/hr instead of 7/hr because you don’t have to pay the SS, FICA, WC, etc. (Which btw is a falsity in it self. When you choose what you pay people your expenses should be added into it. So if you are paying only 7, because your expenses are taking you to 9, it is no difference than just paying someone 9. Your expenses are the same. Only thing is, the employee gets less. If you charge a reasonable amount and have a understanding on your fiances, then none of this should matter, but I digress…)
Lets say Mary (the IC) gets hurt on the job. Specific incident that has actually occurred is she does day visits 5 times a week for a old Husky with hip dysplasia. They get along every day and then one day BAM! She is bit. (True story)
Top of the hand
Bottom of the hand
She incurs over $30,000 in medical bills. She has three options to get money.
1) Go after the owner of the pet.
2) Go against her employer.
3) Use her own health insurance policy if she has one .(Which BTW most health insurance carriers will not cover you if you were hurt on the job and the hospital will ask you numerous times…”Did this happen at work?”)
Say she went against the you the “employer”. You go to court, finally get in front of a judge (Now months have gone by, client is upset, IC is upset, they spread rumors about your business, and you are stressed to the max dealing with this ongoing problem that you can’t think straight anymore. You have also already invested a few thousand dollars in a lawyer.) The judge asks you things like:
– Did you tell Mary where to go to preform the work?
– Did you tell Mary what to do?
– Did you tell her how many times to go to the clients home?
….and more.
Lets just say that the judge sides with you on the independent contractor matter and says that Mary was an IC.. You “win” but you have invested thousands of dollars in legal fees . So is that really considered a win ?
Lets just say the judge does not side with you. He says that Mary was actually an employee. The Mary is eligible for the benefits under workers compensation ( 100% medical plus loss of income ) Since you were operating with IC’s, you do not have workers compensation . But you still have to pay 100% of the medical bills PLUS loss of income out of your pocket . Next in the pay line are is the State and Federal Government. 1. You operated without workers compensation you get fined per day back to when you hired this person . 2.The unemployment people come back against you for not paying unemployment taxes. 3.The social security people come back against you for not paying that tax . 4.Etc.
This is all what Dennis has told me folks. I am not making this up!!!
Let the fact be known that the above scenario and pictures were from an actual dog bite in Az from a company operating with employees. This company didn’t pay a dime because they were covered under their Workmans Compensation. No deductibles, no forms, nothing.
Want more proof? Dennis said this happened in NJ without an actual workers compensation injury situation. (Huh? I know… read on.) The IC was laid off from her manufacturing job, filed for unemployment and listed the pet sitting company on the form along with the manufacturing company . The State could not find where the pet sitting company paid any unemployment tax and went after the pet sitting company and got a judgment on them. Fines were high and the back taxes were due . The business owner basically gave them the keys to the business and folded. Went bankrupt. Just like that. One day you have an asset worth hundreds of thousands of dollars that you could sell for your retirement, and the next day you don’t. Big Gulp.
But Dennis, I have someone sign paperwork that says they are Independent Contractors. Doesn’t that count? You can have someone sign all the paperwork saying they agree they are ICs but it may not mean anything. Most pet sitter businesses want their liability insurance coverage to include the people that work for you. (In other words the pet sitting business owner tells the IC’s “Don’t worry, you are covered under my policy”) Although at the same time the business owner wants the workers to be IC’s so they don’t have to pay for workmans compensation or pay more taxes. This scenario alone shoots the business owner in the foot because the IC doesn’t have their own liability insurance, which is one of the determining factors for who is a IC.
Regardless of a positive or negative outcome, you still have to spend the months and money defending yourself in court. Even if you win and end up spending $10k (conservative number) to defend yourself, are you really a winner? Ummmm, no.
So… is walking the fine line really worth it? Is being in the grey area really good? Are you willing to go all in and gamble your entire business everyday you are operating? All it takes is ONE DOG BITE. From a client who you could be servicing with no problem right now. Already we know that the Fetch franchises are giving our industry a lot of attention because of the model they chose to sell. We know that the state of New Jersey is looking into the IC models. From what I have heard, they never mentioned to the owners that their IC’s have to purchase their own liability coverage. (Let me remind you that business insurance covers things that happen to the business not to the workers.)
So how do you defend yourself? Stay with me. Dennis wrote most of this…. Buying a worker’s compensation policy even if you do not have W-2 employees will give you defense if one of these IC’s come back against you for an injury . If you lose the case then the workers compensation benefits would be paid under the workers compensation policy . The only expense to you would be the cost of the workers compensation policy .
On the other side if you have your workers compensation issued for independent contractors, at a low estimated payroll, the insurance company might come back and charge for the uninsured IC’s but the waiver that most pet sitting businesses have them sign might keep the company from doing that . I would rather take the chance of paying a higher premium than paying thousands in legal costs out of your pocket . Every situation is different and there is no real answer to this question . Although the most steal tight scenario would be to have employees and workman’s compensation and then (like the example above) you would have nothing to worry about if any incidents happened.
Having both liability and workers compensation is the best coverage program that you can have to protect your business from situations regarding the IC’s. However, if you are getting workmans compensation to help your IC’s, you are only putting a bandaid on a much bgger problem ones the government gets wind of what is happening and comes after you. Insurance of course will do nothing regarding taxes etc .
Is it really worth it?
———————————————————————————–
Dennis A. Stowers, CIC can be reached at: Mourer-Foster, Inc 615 N Capitol Ave Lansing, MI 48933 Direct (517)346-5230 Toll Free 1-800-686-2663 email: dstowers@mourerfoster.com
If your independent contractors really are independent contractors, they should carry their own general liability insurance and health insurance and that should be a requirement in their contract. Whether you know it or not, that is a requirement in most business general liability policies. That is why the general liability policy likely wouldn’t have picked up the legal costs in the above scenario. Also, buying a work comp policy covering independent contractors is not easy to obtain and can be very expensive.
Larry, you are so correct! However, it is pretty scary because most pet sitters that I come in contact with choose the IC route bc it is “cheaper” Industry norm is that the business owner pays for liability insurance. Some I have even heard of getting workman’s comp for their IC’s which is really shooting themselves in the foot. There just isn’t enough education out there and there are a lot of people that are sticking their head in the sand. I want to help pass along this education. One dog bite could equal a business going under. {gulp}
Most of my sitters are young and broke. I am finding that I may have to go the employee route because I cannot assuem they will cover health insurance or liability insurance. I will have to pay less and do these things for them to protect myself and my business. People cannot be depended on to take care of themselves.
I know why I can’t afford pet sitters as employees:
I can only speak for myself however I would have to pay the casual award (minimum wage) rate based upon the animal attendant classification. This is 25% more than the ‘normal’ rate that full time and part time employees would receive. For someone to qualify for full time or part time employment I would have to supply the employee with a required minimum hours for each ‘classification’ (full time/part time).
This doesn’t take into account my expenses (compulsory superannuation contribution, payroll taxes, etc) … which means I would have to charge rates that are (to be honest) unrealistic.
There is no way I would be able to legally get away with paying $7-9 per hour !! I wish !!!
Thus the reason a lot of pet sitters in Australia use sub-contractors (aka ICs).
I forgot to mention, only the UNprofessional pet sitting businesses say “They’re covered under my insurance” (and usually as you mentioned don’t last long!!) when using contractors. I always require all my contractors to supply their own insurances, etc. I also inform them that they are free to work for as many other businesses as well as themselves (their own business). Here in Australia, I can use someone that does the same / similar work as me.
The big things that are no no are: The person cannot earn more than 60% of their total income from one business as a contractor or else they have the risk of the ATO (tax office) reclassify-ing the person as an employee… The person must be allowed to say NO to any work given to them or else they are being used as an employee… The person can only be given tasks yet it is up to them how to exactly carry out the work (I can specify the start/end date, how many times the must perform the task etc just not tell them “HOW” to do the task)….
Thanks for your feedback Vanessa. Yes, it is a bit different in Australia with the laws….but you pretty much hit the nail on the head!
Great article. Thank you for taking the time to write it in detail and getting an insurance persons experience on it. Some things are not so simple or cut & dry. You need to know all the in’s & out’s and this is one topic that requires that knowledge.
Sirena,
I am glad you enjoyed it! Please feel free to sign up for our blogs to appear in your email when they are posted. (Only about 8 a month) on the right side of the screen—->
Best,
Danielle
How do you get workers comp? I always thought that is included when you pay employee taxes, etc. Please let me know.
Thanks,
Michelle
Hi Michelle!
Great question. WC is a separate insurance that you purchase. You pay taxes with W2’s and insurance to cover your butt! 🙂 Make sense? Let me know if you have any other questions. I would suggest giving Dennis a call. His info is at the bottom and he can explain it allllll to you. Really nice guy!
The State of Idaho (Labor office I think) offers the best rate on WC insurance for me. It is $400/year. Not sure of the limits.
Danielle, Im having someone work on workers comp right now in florida and he said he is having trouble finding someone that wants to risk it. Do you know any sitters in the florida area that have workers comp. I’d like to do it on quickbooks so its accurate but now Im worried everyone will deny me.
Yes there are a lot of companies that will not even quote pet sitters any more. Try Dennis at Mouer Foster! I don’t understand your reference to quickbooks. It has nothing to do with WC?