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Updated Notice to our Clients Hiring Independent Contractors who are Sole Proprietors

*previous post is below update*

As of March 21st, the bill has been passed and will go into effect this September.

The passage of LB139 will hopefully provide some clarity to insurance carriers as to how to handle uninsured sole proprietors hired to complete work for a general contractor.  The bill underwent many draft changes throughout the process of getting it passed through the legislature.  The Independent Insurance Agents of Nebraska have worked very hard for years on this issue.

However, this bill is by no means perfect.

There is some question as to how this will impact the insurance company’s practice of charging premium for uninsured sole proprietors hired by general contractors on the contractor’s worker’s compensation.

Chaz Kuper of Larson, Kuper & Wenninghoff , a law firm specializing in Workers’ Compensation defense, noted the bill will not impact an employer or general contractor’s potential liability for Workers Compensation benefits. While the fact an independent contractor is “legally certified” would likely be considered by the Nebraska Workers’ Compensation Court when determining if a person is an independent contractor or an employee, the “certification” will not be binding on the Court. Thus, after weighing several factors, if the Court determines an injured party meets the definition of an “employee”, then the employer would potentially be liable for workers’ compensation benefits. 

The other, and likely bigger, concern raised by Mr. Kuper centers on the potential for a general contractor to become a “statutory employer.” This can occur if the independent contractor has employees and fails to provide workers’ compensation coverage for those employees. In that instance, the general contractor can become jointly and severally liable with independent contractor as it relates to workers’ compensation benefits for an injured employee of the independent contractor. Therefore, if an independent contractor (including a “legally certified” one) has employees, then the general contractor must require the independent contractor to carry (and show proof of) workers’ compensation coverage for those employees to avoid liability as a “statutory employer.”

This means general contractors still need to be diligent in their approach to hiring independents.  

Previous Post is as follows:

We wanted to give a heads up to any of our clients who may hire independent contractors. As always, if you have any questions regarding the following, please contact us. We are happy to help.

Recently, there have been court cases involving jobsite injuries to independent contractors who were uninsured for Workers Compensation due to the fact that they did not have any employees. The state of Nebraska does not require these sole proprietors to carry Workers Compensation to cover themselves. However, courts are stating that this does not necessarily exempt the jobsite’s general contractor (or hiring contractor) from being responsible for these independent contractor’s injuries.

Although the Nebraska Workers Compensation Court has determined that, “employers are not required to provide coverage for independent contractors”, the problem lies in the definition of an independent contractor (it is not defined in the Nebraska Workers Compensation Act).  When an independent contractor is injured on the job, the Court applies an arbitrary test to decide whether or not the contractor truly is an independent contractor, or is rather a “statutory employee” of the general contractor. 

The court does NOT consider the contractual relationship between the two parties, nor any written statement/waiver from the independent contractor. If just one factor in determining the relationship is in the affirmative towards defining the contractor as a “statutory employee”, then the courts determine them to be so, andthe general contractor is held responsible for their injuries.

Due to these facts, and the fact that the insurance carriers have been forced to pay for claims to these contractors (whom both the insurance carrier and the general contractor both believed to be independent contractors), the insurance carriers are now beginning to audit these independent contractors as if they were employees. 

This can obviously lead to a surprisingly large audit for many general contractors.

Our advice is twofold:

Require any independent contractors that you hire to take out a Workers Compensation policy and require a certificate showing this, same as you do for their General Liability policy. This will prevent an unexpectedly large audit, as well as a potentially large claim affecting your Work Comp Mod.

Contact your local state representative and ask that they support LB 139. LB 139 is a bill that was just introduced to the state legislature. The bill would require independent contractors to either purchase Workers Compensation insurance, or be legally certified as an independent contractor. This proposed legal certification would, in effect, act as a legal waiver of any benefits under the Nebraska Workers Compensation Act.  Details of the certification process are still unclear.

Passage of LB 139 will add clarity to the Nebraska Workers Compensation Act. It will allow the independent contractors to continue to truly maintain their independent status. And, of course, keep the money paid to independent contractors off of your Workers Compensation payroll audits.

Remember, as business owners ourselves we understand the importance of fast, fair service. As independent insurance agents, we only represent insurance carriers who have excellent histories of fast, fair claim settlement.

We know that your business doesn’t just stop because you need to file and insurance claim, so we’ll do whatever we can to help you get back to business as quickly as possible!

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