Regular Employee vs Sub Contractor is there really a difference

written on April 29, 2009 by COSEWorkersCompensation contributor

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Things you should know before you designate employees as subcontractors ...

Submitted by William McKinley, Esq.  - Calfee, Halter & Griswold LLP; A COSE Legal Partner

"Employees" are afforded the right to participate in the benefits of workers' compensation.   "Independent contractors" are not.  Not surprisingly, many Ohio employers seek to classify workers as "independent contractors" as a means to avoid providing workers with these benefits, reporting higher figures in payroll, and as a way to save other costs.  However, simply labeling a worker as an "independent contractor" or "1099 employee," even if by written agreement by both the worker and employing entity, does not make it so.  As a result, employers who expect to sidestep financial responsibility for a work-related injury, or who enjoy lower annual premiums by reporting smaller payrolls with fewer "employees," can be blindsided by additional workers' compensation costs.   

Since the 1940's Ohio Law has recognized that the critical determination in assessing a worker's employment status is the answer to the question: "Who has the right to control the manner or means of doing the work?"  If the employing entity reserves this right, then the worker is deemed to be an "employee."  If the worker is responsible to the employing entity only for the result of such work, then the worker is considered to be an "independent contractor."  It may sound simple enough, but Ohio courts used and refined this "right to control" test for 45 years until a (non-exhaustive) list of factors were found to be determinative.  In 1988, the Ohio Supreme Court in Bostic v. Connor determined these factors to be:

  • 1) Who controls the details and quality of the work;
  • 2) Who controls the hours worked;
  • 3) Who selects the materials, tools and personnel used;
  • 4) Who selects the routes traveled;
  • 5) The length of work;
  • 6) The type of business;
  • 7) The method of payment; and
  • 8) Any pertinent agreements or contracts.

Furthermore, in the mid-1990s, legislative reform codified the definition of "employee" under the Workers' Compensation Act as it relates to construction work.  O.R.C. § 4123.01(A)(1)(c) defines a construction "employee" as, Every person who performs labor or provides services pursuant to a construction contract[1]. . .if at least ten of the following criteria apply:

(i)  The person is required to comply with instructions from the other contracting party regarding the manner or method of performing services;

(ii)  The person is required by the other contracting party to have particular training;

(iii)  The person's services are integrated into the regular functioning of the other contracting party;

(iv)  The person is required to perform the work personally;

(v)  The person is hired, supervised, or paid by the other contracting party;

(vi)  A continuing relationship exists between the person and the other contracting party that contemplates continuing or recurring work even if the work is not full time;

(vii)  The person's hours of work are established by the other contracting party;

(viii)  The person is required to devote full time to the business of the other contracting party;

(ix)  The person is required to perform the work on the premises of the other contracting party;

(x)  The person is required to follow the order of work set by the other contracting party;

(xi)  The person is required to make oral or written reports of progress to the other contracting party;

(xii)  The person is paid for services on a regular basis such as hourly, weekly, or monthly;

(xiii)  The person's expenses are paid for by the other contracting party;

(xiv)  The person's tools and materials are furnished by the other contracting party;

(xv)  The person is provided with the facilities used to perform services;

(xvi)  The person does not realize a profit or suffer a loss as a result of the services provided;

(xvii)  The person is not performing services for a number of employers at the same time;

(xviii)  The person does not make the same services available to the general public;

(xix)  The other contracting party has a right to discharge the person;

(xx)  The person has the right to end the relationship with the other contracting party without incurring liability pursuant to an employment contract or agreement.

The Industrial Commission and Ohio Common Pleas Courts often borrow these "construction employee" factors and apply them in employment situations other than just those which operate under a construction contract. 

The bottom line is, actions speak louder than words.  Even a preliminary agreement that a worker is to be hired as an independent contractor is only one factor of many to be considered.  If you are concerned that your "independent contractors" could be found to be "employees," evaluate your situation in terms of the right to control test and the "construction employee" factors listed above.     

 

William B. McKinley, Esq.

Calfee, Halter & Griswold LLP


[1] O.R.C. § 4123.79(C)(2) defines "construction contract" as "any oral or written agreement involving any activity in connection with the erection, alteration, repair, replacement, renovation, installation, or demolition of any building, structure, highway, or bridge."