Archives February 2011

When is a worker an employee and when is a worker an independent contractor?

Employers worry that they may have an independent contractor that is actually an employee. Please remember this important fact: There is no such thing as a 1099 employee.

The worker is either an employee, requiring tax withholding and an issued W-2, or they are an independent contractor.

Things change from state to state. We are asked this question quite often by our payroll consulting clients, not only here in Orlando, but throughout the state of Florida and even nationwide.

Here is a list of questions the state of Florida uses to determine the status of a worker:

A “Yes” answer for the following questions indicates that the worker is an employee:
1. Does the business provide instructions to the worker about when, where and how he or she is to perform the work?
2. Does the business provide training to the worker?
3. Are the services provided by the worker integrated into the business’ operations?
4. Must the services be rendered personally by the worker?
5. Does the business hire, supervise and pay assistants to the worker?
6. Is there a continuing relationship between the business and the worker?
7. Does the business set the work hours and schedule?
8. Does the worker devote substantially full time to the work of the business?
9. Is the work performed on the business’ premises?
10. Is the worker required to perform the services in an order or sequence set by the business?
11. Is the worker required to submit oral or written reports to the business?
12. Is the worker paid by the hour, week or month?
13. Does the business have the right to discharge the worker at will?
14. Can the worker terminate his or her relationship with the business any time he or she wishes without incurring liability to the business?
15. Does the business pay the traveling expenses of the worker?

A “Yes” answer for the following questions indicates that the worker is an Independent Contractor:
16. Does the worker furnish significant tools, materials and equipment?
17. Does the worker have a significant investment in the facilities?
18. Can the worker realize a profit or loss as a result of his or her services?
19. Does the worker provide services for more than one firm at a time?
20. Does the worker make his or her services available to the general public?

Confusing? Yes. Is it risky? Yes it is. The federal government and the IRS are under a directive to reduce the abuse of the 1099 classification. Make sure your contractors are truly independent contractors. If you are unsure, you may want to check with an expert.

If you would like further information from us please call 800.788.8343 or use the form below:

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Many times a day, we are asked if there is a way to get a discount on workers’ comp premium. In Orlando, other parts of Florida, and indeed nationwide, this is a daily part of our workers’ comp quotes process. There are both short and long answers to this.

Short Answer: “Yes, sort of …”

Long Answer
Every state in the country handles workers’ comp their own way, and not surprisingly, no two states are alike. however, at the risk of generalization, we will put states in two categories: Administrative States and Loss-Cost States. Each is discussed below.

Administrative Rates
Many states set the rates for workers’ comp, or at least the “base rate”. Florida, for example, defines the manual rate for each workers’ comp classification code, with help from the National Council for Compensation Insurance (NCCI). These rates can be modified by various factors, including credits for a drug free workplace, a written safety program, a very complicated and confusing program for construction credits, and for all companies the actual claims experience can be taken in to effect.

Loss Cost Factors (LCF) or Loss Cost Modifier (LCM)
Other states may have a base rate table which is multiplied by the insurance carriers LCM, as determined by historical claims data. In addition, some states let the carriers set their own rates for each class code, which is then put through an extensive approval process.

Stay with us, we told you this is the Long Answer …

So how does this help a business owner get discount rates? There are two options we will discuss today, traditional policies and co-employment solutions using a PEO.

In a state like Florida, the traditional policy rates can only be affected by credits and experience modifiers. Credits are offered for a verified, written safety program (2% discount) and a certified Drug Free Workplace program (5% discount). There are also some very confusing credits for new construction, which have not been a major factor in the last few years, sadly. A company that has been paying comp premium for more than 2 years may also be eligible for an Experience Modifier Adjustment. Every new company starts with a multiplier of 1.0, that is, no modification at all. Have a couple of good years with no claims, that multiplier can be less than 1.0, say .92 or .83 for example. Have a couple of bad years with a lot of claims and that multiplier can go up. There are also programs which can refund premium or pay dividends to policy holders, but these are usually restricted to annual premiums of $50,000 or more.

Using a PEO in a Co-Employment Situation is a completely different scenario. In this case, the PEO becomes the employer of record (for comp purposes among others) and pays whatever rate they pay for their employees. Since the client’s employees are now the PEO’s employees, the client no longer pays comp premium, but instead pays a service charge to the PEO. This number is unregulated and negotiable. It is possible for a safe client to negotiate a much lower rate on workers’ comp. Conversely, a client who can’t get coverage from a traditional carrier (because their risk is actually much higher than the state set rate would bear), can get coverage from a PEO by negotiating an equitable service charge.

So while paying a PEO is technically not paying for workers’ comp insurance (it’s their insurance, not yours), you can get your employees covered at a discount rate.

If you have more questions on this topic please use the contact form below:

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Mike and Starr Mackey

“The first time I even thought about W-2s this year was when our personal copies arrived in the mail” Destinations Unlimited Tours owner Mike Mackey tells us. “It’s a tremendous relief not to worry about that and other HR issues like payroll taxes and workers’ comp insurance. I’m so glad PEO Pros found us a good match for our PEO services.”

Mike and Starr Mackey, pictured here, are the owners of this combination travel agency and charter bus company.

“We like to work with tour groups. Schools, churches and other common interest groups can have us take them to the cruise ship, the big game, or even a safe tour of New York City. We take them to the best restaurants, best hotels, and all of the details are taken care of.”

“The PEO relationship has enabled us to provide proper insurance coverage to work with public schools, department of defense and other heavily regulated agencies. Workers’ Comp was always a black cloud that hung over our head before. Now it is somebody else’s problem.”

“We even have a ‘Magical Mystery Tour’ where the guests are only told how much money to bring, and when they will be back. I’m not going to spoil it by telling you where we are going this time, but we have gone to places like Mobile, AL and toured the Navy Museum, stopped in Panama City Beach for some sun and white sand, and even hit some breweries and wineries along the way. It’s one of our most popular tour packages.”

“Folks enjoy taking us to the cruise ship, because the vacation begins when they step on the bus, and doesn’t end until they get back home. No driving to Miami or Fort Lauderdale. No parking worries. No traffic. Leave the worries to us!”

Destinations Unlimited Tours has been a client of ours since 2008. They have recommended our service to some of their friends in the industry, the best testimonial a client can give!

“We recently had a worker who was out on sick leave” Starr Mackey tells us. “It was so nice to simply make a call to the PEO and find out what we needed to do. They are always only a call or email away.”

Debby Boote

“On a personal level, I like it because we have direct deposit and my money goes right to my bank account” says Debby Boote in Business Development. “And on a business level, I like it because if there is ever a problem or a question I can go to the PEO and they are always there to help out right away.”

Here is a video featuring Mike Mackey, Starr Mackey and Debby Boote from Destinations Unlimited Tours: