Self-employed or salaried? Make sure you know this from the start. | Bricker & Eckler LLP

The law treats employees and independent contractors differently. Independent contractors are generally exempt from labor and employment laws, such as minimum wage, overtime pay and pension contributions, while employees are generally covered there. Failure to properly classify independent contractors and document their status as such at the start of a relationship can lead to liability for workers’ compensation and unemployment contributions, benefits lawsuits benefits and wage and hour claims at a later date, often because a relationship has deteriorated or a person feels an employer has taken advantage of it.

Usually, the determination of independent contractor or employee status is made after examining the relationship between the worker and the employer. All evidence of control and independence is considered in determining an individual’s status, including behavioral control, financial control, and categorization by the parties of the relationship itself. It seems like an easy decision to make.

However, a recent Ohio Supreme Court ruling is a timely reminder that public employers must deliberately classify service providers as independent contractors rather than employees. In State, ex rel., Ugicom Enterprises, Inc. v. Morrison, 2022-Ohio-1689 (May 24, 2022), the Court considered whether certain individuals were actually employees under Ohio workers’ compensation laws and found that they l ‘were. The Court’s decision resulted in a $341,000 liability to the employer for workers’ compensation premiums it should have paid for its workers. The employer argued that these people — who set their own hours, brought their own tools, and signed agreements with non-compete clauses stating they were independent contractors — were not its employees. The Bureau of Workers’ Compensation and, after years of litigation, the Supreme Court of Ohio saw things differently. The Bureau had considered that the substance of the employment relationship rather than its stated form was the determining factor. The Court agreed, explaining that there is no “clear line” rule for determining whether a worker is an independent contractor or an employee and holding that the key determination is “who had the right to control the manner or the means to do the work”. “In the end, the Court concluded that the company’s practice of paying its workers the amount it decided unilaterally, which prevented individuals from submitting a quote for the work, was a means of controlling them and in made employees. The Court further considered non-competition clauses in independent contractor contracts as another means of control. Because the Bureau’s decision was supported by “certain evidence on record” before the Court, the Bureau’s classification of workers as employees entitled to workers’ compensation has withstood judicial review.

The Ohio Public Employees Retirement System (OPERS) will also seek reimbursement of contributions and penalties from public employers who incorrectly classify workers as independent contractors, which can result in significant financial liability for a public employer. because the employer is fully responsible for employer and employee contributions. , with interest. The OPERS test for determining whether contributions must be made on behalf of a worker is set out in Ohio Administrative Code 145-1-42 (A). Its standard takes into account factors such as the rights of the parties established by written documents, the manner in which the worker is compensated and whether they are “controlled or supervised by the personnel of the public employer as to the manner of working”. person who provides personal services but who is not considered an employee under these factors complete the form PEDACKN within thirty (30) days of the start of the provision of these services. The public employer must then submit the form to OPERS. As a general rule, any other natural person who renders personal services to the public employer is considered an employee for whom pension contributions are paid.

Determination of workers’ rights to other compensation and benefits, such as overtime pay and health insurance, is determined in accordance with federal law, which generally focuses on the extent to which the entity can control and direct the work of the individual. It’s the same for Tax implications for health insurance.

Experience has shown that the best intentions can often lead to unintended consequences. No one (well, almost no one) enters into a settlement expecting it to result in years of contentious litigation. The diligence of a public entity in defining its relationship with workers before they provide services to it and then adhering to those established parameters will better ensure the outcome that everyone wanted all along.

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