Employers are often caught off-guard when a Washington Department of Labor and Industries’ workers’ compensation audit results in a daunting Order of Assessment demanding back payment of industrial insurance premiums, penalties and accruing interest due to the misclassification of covered workers.
Simply labeling a contractor as “independent” does not take away the workers’ compensation protections afforded in the State of Washington if that worker provides personal labor.
Regardless of the type of business, an employee asserting an independent contractor relationship will need to pass the department’s Personal Labor Test to meet exemption status.
Specifically, the business owner must be able to establish one of these two qualifications:
If a worker cannot meet the requirements of the Personal Labor Test, the department next offers a six-part test to determine if the company must provide workers’ compensation coverage by paying industrial insurance premiums (seven-part test for construction companies).
The company must affirm all of the following questions:
Navigating how to answer each question takes careful consideration. For example, whether an individual is determined to be providing personal labor or is free from the company’s control or direction is highly fact-dependent.
Employers who misclassify a worker can quickly be exposed to a hefty assessment. If the company did not recognize a worker was covered, it is likely that the company did not keep records of the work duties and hours. When records are missing, the department is within its authority to estimate and assign the greatest risk classification and daily hours worked for the past three-year period.
Engaging counsel for consultation early on may help identify and address misclassification errors prior to an audit. During the audit process, employers benefit when having an advocate to provide guidance during interactions with the department and ensuring information requested is in fact required to be divulged based on considerations of subject matter and/or time limitations.
Navigating through the appeal and reconsideration options will require an assessment of business objectives and the likelihood of success in challenging the department’s findings.
Jennifer L. Truong is an attorney with Reinisch Wilson Weier PC, headquartered in Portland, Oregon. This column is republished with permission from the firm’s website.
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