Risk & Insurance: Increasing the Stakes of Using "Nonemployee Workers"

Articles / July 29, 2010

Cleveland partner Todd Lebowitz authored an article, "Increasing the Stakes of Using 'Nonemployee Workers,'" which was published in the July edition of Risk & Insurance magazine.

According to Lebowitz, "The passage of healthcare reform seems to provide a new incentive for companies to take workers off their books, either by using independent contractors or by bringing in employees of a staffing agency. Fewer employees have always meant lower healthcare costs, but after health reform, fewer employees also mean less exposure to penalties that will be imposed when employees opt out of company-sponsored health coverage."

Lebowitz continues: "Classifying workers as nonemployees, however, creates a different set of risks for companies. Under federal and state laws, a worker's employment status is determined by how the work is controlled, not by what the worker is called. Companies that misclassify workers as nonemployees face a range of potential penalties and liability—under tax law, employee benefits law and employment law . . . The use of nonemployee workers is therefore more appealing—but also more dangerous—than ever. Now is an ideal time for employers to evaluate their nonemployee workforce and to take steps to minimize the risks associated with this practice."

The article goes on to explain the benefits and potential risks associated with utilizing nonemployee workers, on the state and federal level. Lebowitz advises that companies can limit their misclassification risks by taking three steps:

  • Include protective language in their contracts with staffing agencies and with independent contractors
  • Include protective language in their benefit plans, to protect against the possibility that workers treated as independent contractors may later be deemed common law employees
  • Establish limits in how their supervisors interact with nonemployee workers

Lebowitz concludes: "These steps provide a good starting point, but the risks and recommended action plan for each company will be different, depending on the facts of each particular situation. Companies should seek advice from their employment, tax and benefits counsel to ensure that they are protected under each of these areas of the law."