Why You Can’t Afford Not To Have Employees, From the Insurance Company’s Mouth

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?

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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