Compensator

              Most employers understand their workers’ compensation
insurance coverage, however one area that can cause
confusion is classifying workers as either independent
contractors or employees.
Because there is no universal test for independent
contractor status, employers are faced with
a variety of state and federal definitions and
overlapping statutes. A situation that qualifies
someone as an independent contractor under
the Internal Revenue Service (IRS) tax code may
not be the same under Oklahoma’s workers’
compensation statutes. Correctly identifying
workers under each circumstance is becoming
critical as federal and state agencies more closely
scrutinize employment reporting practices.
Misclassification can result in federal and state
penalties, and increased workers’ compensation
premiums at the end of the policy year. See the
article on page 10, “Feds push for employment
law compliance.”
The issue of independent contractor versus
employee is a common frustration among employers
according to Sandra Teer, CompSource premium
audit manager.
“Often an employer believes he or she can apply IRS
criteria to their workers’ compensation policy, but that
isn’t always the case,” Teer said. “One of the biggest
misconceptions relates to the definition of ‘employee’
within Oklahoma’s workers compensation laws. When
workers are associating themselves together under an
agreement to complete a job, they are considered employees of
the person having the work executed.
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Employee or
Independent Contractor?
Cont. on Page 4
Compensator 3
“Employee . . . shall include
workers associating
themselves together . . . for the
performance of a particular
piece of work, in which event
such persons so associating
themselves together shall
be deemed employees of
the person having the work
executed.”
Source: Title 85, Oklahoma’s workers’ compensation
statutes. For more on Title 85 or to read Oklahoma’s
definitions of employee go to www.owcc.state.ok.us.
Click on “Laws/Rules/Charts,” “Title 85.”
For example, if you’re a
contractor building a house
and four drywall workers
come in to do a job for you,
they should be classified as
employees on that job.”
“Since each circumstance
is unique, I would
encourage policyholders
that if in doubt, call the
CompSource premium
audit department. We’ll
look at the situation
and advise you if the
individuals would be
classified as employees
under Oklahoma’s workers’
compensation law. It’s better to call and
check and hopefully avoid any surprises at
the year-end audit. We are a great resource
for employers when determining worker
status,” she added.
Employee misclassification extends across
a broad range of industries, and commonly
occurs in construction, skilled trades and
home health care due to the independent
nature of the work in these industries.
Mike Means, executive vice president
its members on issues such as
employee misclassification,
obtaining proper proof of
coverage from others and
maintaining proper coverage for
their own business.
“We believe there are too many
people doing jobs and exposing
workers to claims by not carrying
workers’ compensation themselves,”
Means said.
“Usually the contractor is
unaware a subcontractor
doesn’t have coverage
until there’s a claim and
it’s too late. ”
– Mike Means, executive vice
president for the Oklahoma State
Home Builders Association
4 Compensator
for the Oklahoma State Home Builders
Association, said their organization trains
“We think any
compensation coverage.
it’s too late. Then the
of workers’ compensation
Means said.
the importance of proper
classification.
Cont. on Page 6
contractor, whether
independent or with
a small crew, should
have workers’
Usually the contractor is
unaware a subcontractor
doesn’t have coverage
until there’s a claim and
contractor is facing a claim
on their policy and possibly
litigation. It’s for their
protection to require proof
insurance before a
subcontractor starts on a job,”
Insurance agents are
also doing their part to
educate policyholders on
CompSource’s premium audit department wants to ensure
all of our policyholders understand the premium audit
process. Below are facts that some readers may not know
can impact premium calculation.
Did you know Certificate of Non-Coverage Cards (CNC
Cards) are no longer being used in Oklahoma to exclude
payments made to independent contractors?
Did you know if a person meets the criteria of “employee”
as defined by Oklahoma’s workers’ compensation law,
payments to that individual will be counted as wages
on the workers’ compensation audit regardless of
whether the payments are reported to the Internal
Revenue Service on a Form 1099 or W2?
Did you know that Affidavits of Exempt Status forms
presented for exclusion of premium must be
evaluated by CompSource for validity and that they
must have been obtained before work was initiated?
Did you know the most important action you can take
for an audit is to ensure you keep complete
payroll records that document payments
Did you know
that bonuses paid to
which premium is calculated?
“Understanding the Premium Audit
compsourceok.com/premaud.htm.
Did you know?
Compensator 5
with detailed job descriptions and
classification of payroll?
employees are included in wages for
For more on this topic see
Process,” a booklet available on
CompSource’s website at www.
“Employee misclassification continues to
be a difficult matter for our policyholders,
particularly in the construction industry,”
said Larry Neal, insurance agent and owner
of the J.T. Neal Insurance Agency.
“Often, someone sees themselves as an
independent contractor because they
perform the majority of the job alone, but
they forget about the person who helps
them with only one element of the job. For
example, if a cabinetmaker has someone
helping attach cabinets to walls, the helper
is an additional exposure that’s not being
covered under a workers’ compensation
policy,” Neal said.
One tool that many agents and
policyholders use in determining the
classification of a worker is the Affidavit
of Exempt Status Form and Fact
Sheet.*
to carry workers’ compensation
that if they have all their
employees sign an affidavit
they can be classified as an
independent contractor,
however that is not the
case. If an independent
contractor hires employees
The affidavit was created for
use by individuals who are
independent contractors and
exempt from the requirement
insurance; it is only valid for the
person signing the affidavit.
Some contractors believe
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* The Affidavit of Exempt Status Form and Fact
Sheet are available on CompSource’s home
page at compsourceok.com.
“In the past an auditor has contacted me for
an audit at my place of business but this year
I was asked to complete forms to return by
mail. I prefer the auditor come to my place of
business. Why did the auditor not schedule a
visit this year?”
Policies are not always audited at the policyholder’s
place of business. CompSource has three types of
audits.
A physical audit involves the CompSource auditor
scheduling an on-site visit to review the policyholder’s
records at their place of business or at the office of their
certified public accountant or bookkeeper.
A mail-in audit involves CompSource mailing a premium
audit packet to the policyholder to complete and return.
This is often much more convenient for the policyholder
and saves the time and trouble of a on-site visit.
An interim audit is when the CompSource auditor
schedules a quarterly or semiannual on-site visit to review
the policyholder’s records.
The decision on which kind of
an audit is performed is based
upon numerous factors and may
change depending on the nature
of the business.
For additional information please
refer to “Understanding the
Premium Audit Process” booklet. It
is available at www.compsourceok.
com./premaud.htm. or you may call
800.347.7663, ext. 5528.
Do you have a question for one of CompSource’s workers’ compensation experts?
Contact us at media_ department@compsourceok.com.
Sandra Teer
Premium Audit Manager
to work on a job, then that Ask the expert
contractor must carry workers’
compensation coverage for those
employees unless they are exempt under
the family of five rule.
Ideally, the working relationship
should be determined prior to any work
commencing. However, the issue of
whether someone is an employee or an
independent contractor often does not
present itself until someone is hurt or
killed on the job and a lawsuit is filed.
If there is no workers’ compensation
coverage at the subcontractor level,
then responsibility typically transfers
from the subcontractor up the
employment chain to the general
contractor and a claim is filed under
their policy. This creates a potential
liability issue for the employer since
no premium has been collected to
cover the exposure.**
One solution for ensuring every
employee is properly classified and
everyone is adequately covered,
is to be thorough in validating
the contractor’s information. It’s
better to be cautious and make
sure you have proper protection
from liability should an accident
occur on the worksite.
Keeping the following points in
mind should assist in navigating
the majority of the issues
surrounding insurance coverage
verification or employee
classification.
Compensator 7
Cont. on Page 8
** The employer’s liability is further discussed
in chapter 2 section 11 of Title 85, Oklahoma’s
workers’ compensation statute.
1) Important - As the principal employer,
you must obtain a current, valid workers’
compensation certificate of insurance from
all subcontractors who have employees
working for you. Otherwise, additional
premium may be collected on your audit to
cover the earnings paid to subcontractors.
2) If an employee-employer relationship
does not exist and you believe the person
working for you is an independent
contractor, then they may qualify for
exclusion from coverage. However, they
must provide you a completed Affidavit of
Exempt Status Form and Fact Sheet. If the
subcontractor provides an affidavit, but
you know they don’t work alone, then you
must also obtain a certificate of insurance
from the subcontractor to ensure their
employees are adequately covered.
3) Keep copies of all
documentation to
compensation auditor.
Proof of your due
diligence will be helpful
should a dispute go
before the workers’
compensation court.
4) Always check the
policy coverage dates
of the subcontractor
to verify the coverage
is in effect. This
coverage can be
verified through
the “NCCI Proof of
Verification” tab
on the Oklahoma
Workers’ Compensation Court website
www.owcc.state.ok.us/ncci_coverage.
htm. You may also contact the insurance
company issuing the certificate to verify
coverage.
The topic of employee versus independent
contractor status may seem complicated,
however, with the proper planning
employers can protect themselves from the
unnecessary stress often associated with
employee misclassification.
For additional information on this issue,
contact CompSource’s underwriting
department at or 800.347.3863, ext. 5102.
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provide to your workers’
Compensator 9
Nuts & bolts
Defining employee
Defining independent contractor
For an individual to qualify as an independent contractor, an employee-employer relationship
cannot exist. Under Oklahoma’s workers’ compensation law, an employee cannot be excluded
from workers’ compensation coverage. In contrast, an independent contractor can qualify for
exclusion using an Affidavit of Exempt Status Form if that individual works alone and does not
form an employee-employer relationship.
The statements below can be helpful in determining which classification
applies. No one statement is controlling in defining a worker’s status.
Defining employee
The individual is more likely an employee if they:
– Receive instructions on when, where and how to work. The more instructions they
receive, the more likely they are an employee.
– Receive training from the employer.
– Work at the employer’s place of business, unless the work is scheduled to be done
somewhere else – for example, building a house or painting an office.
– Are told in what order the work is to be done.
– Are reimbursed for any business expenses.
– Have regularly scheduled paydays.
– Can be fired.
– Have no contract with the employer.
– Can quit without being sued for breach of contract.
Defining independent contractor
The individual is more likely an independent contractor if they:
– Have a federal identification number.
– Have a business license.
– Perform work that involves a specialized skill or trade.
– Maintain their own place of business.
– Furnish the majority of their own materials and tools to perform the work.
– Have a written contract that spells out the contractor/subcontractor relationship.
– Have a right to hire and terminate their employees without permission being granted.
– Perform specific jobs for set fees agreed upon in advance.
– Pay expenses incurred in connection with a specified job.
– Provide invoices for work performed.
– Have their own general liability insurance.
– Have their own clientele.
– Work alone.
– Are at risk for losing money on a particular job.
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Perspectives
National trends
According to the U.S. Department of Labor, the misclassification of employees as independent
contractors is expected to cost the U.S. Treasury Department more than $7 billion in lost payroll
tax revenue over the next decade. Below are examples of an increased effort to enforce existing
employment laws across the nation, both at the federal and state level.
Feds push for employment law compliance
Internal Revenue Service
In February, the Internal Revenue Service (IRS) launched the Employment Tax National Research
Project, a three-year initiative to examine tax-reporting compliance by employers. Each year for
the next three years the IRS will randomly select 2,000 taxpayers for an employment tax reporting
review. The examinations will be comprehensive in scope and will primarily focus on payroll tax
reporting, fringe benefits, expense reimbursements and worker classification.
David Stell, IRS spokesman, recommends employers use the “Employers Supplemental Tax Guide
15A” as a guideline to determine proper reporting requirements including proper employee
classification. This guide provides specific details to assist employers in determining if a worker is
an employee or an independent contractor based on the IRS guidelines. Access the IRS guide at
tinyurl.com/2g6h7c2.
Department of Labor
The U.S. Department of Labor is adding 150 new investigators to focus on enforcement
responsibilities. This comes on the heels of a report to Congress by the Government
Accountability Office which made recommendations on additional measures aimed at ensuring
proper employment tax reporting. Some of the recommendations included:
• Enact laws that would make misclassification itself a violation of the nation’s wage-and-hour
laws.
• Narrow the “safe harbor” provisions in the federal tax laws.
• Enhance IRS compliance programs.
• Improve coordination and information sharing between federal and state agencies.
For information from the U.S. Department of Labor about the employer’s responsibility as it
relates to accurate employee classification go to www.dol.gov.
Note: The definition of employee defined under Oklahoma workers’ compensation statutes may be
different than the definition for employee classification under the IRS tax code.
NEWStoYOU
Revisions to workers’ compensation
statute adds light duty clause
Effective Nov. 1, 2010, entitlement to Temporary Total Disability (TTD) has been
modified. It now specifies that an employee is not entitled to TTD benefits if he or
she rejects a light duty assignment after:
• The treating physician has released the employee to light duty work with
written restrictions, and
• The employer makes a good faith offer in writing to provide a light duty
position at the claimant’s same rate of pay.
Offering light duty to an injured employee can be beneficial to both the employer
and the employee. It helps the employer retain a worker and it provides the
employee much-needed time to heal while still being productive at work.
Additionally, it increases the likelihood that the employee will heal sooner and will
return to work full time, ideally working in his or her usual full-time position.
Contact your CompSource claims adjuster if you would like additional information
or have questions about a specific claim. You may also contact CompSource at
800-347-3863 and ask to speak with a claims representative.
CompSource rate structure changes
CompSource Oklahoma Board of Managers approved an adjustment of rates on
certain job classification codes for new and renewal policies effective on or after
Nov. 1, 2010 (12:01 a.m.). Adjustments are based upon the past loss experience of
each job classification code. Therefore, while certain job classification codes may
have a rate decrease, others may increase or remain unchanged.
In addition, CompSource Oklahoma adopted new payroll limitations to be
applicable on new and renewal policies effective on or after Nov. 1, 2010
(12:01 a.m.). The new payroll limitations are outlined below:
• For covered Sole Proprietors, Partners and Limited Liability Members the
payroll limitation is $37,300 annually.
• For covered Executive Officers the payroll limitations are a minimum of
$18,200 and a maximum of $150,800 annually.
If you should have any questions contact the underwriting department at 800-347-
3863, ext. 5102.
Compensator 11
NewNEsW toSt oyYoOuU
P.O. Box 53505
Oklahoma City, OK 73152-3505
FORWARDING SERVICE REQUESTED
PRSRT STD
U.S. Postage
PAID
Permit 1336
Okla. City, OK
Phone number: 800.347.3863 • TeleClaims reporting: 800.872.7015 • Fraud hotline: 800.899.1847
Regional offices: (OKC) 405.232.7663 (Tulsa) 918.295.1500 • Website: www.compsourceok.com
The Compensator is published quarterly by CompSource Oklahoma, 1901 N. Walnut Ave., P.O. Box 53505, Oklahoma City, OK 73152 as authorized by CompSource’s President and CEO. 25,000 copies
were printed by Southwestern Stationery and Bank Supply at a cost of .33 cents per copy. Copies have been deposited at the Publication Clearinghouse of the Oklahoma Department of Libraries.
The Compensator is a publication provided exclusively for policyholders. Editions are posted on our website at www.compsourceok.com under “News.” Direct inquiries to (405) 962-3813.
How to contact CompSource Oklahoma:
Phone system changes for Tulsa area
Tulsa’s local phone system is changing. An additional area code (539) is being
added to accommodate local population growth. In addition to the area code,
Tulsa is transitioning to 10-digit dialing (the area code plus the 7 digit number).
Beginning March 5, 2011, all calls within the 918 and 539 area codes will require
use of the new 10-digit dialing system even when placed as local calls.
CompSource’s Tulsa office numbers will remain the same at this time. The main
number for the Tulsa office is (918) 295-1500.