Workers’ compensation coverage is required for ALL employment. Employers should be aware that they bear liability for anyone they employ. Vermont law defines “Employer” broadly. It includes work performed through independent contractors or subcontractors. The breadth of employer liability may surprise some employers and can result in unforeseen claim or insurance costs. This article provides information concerning coverage requirements, lists the few coverage exceptions and explains the implications of subcontractor liability and “statutory employer” liability.
Few Coverage Exceptions
There are few employment situations that are exempt from workers’ compensation coverage. The best rule of thumb is to assume that coverage is required. For example, there is no exception for non-profits; for a limited number of employees; for limited work hours, nor even for temporary or seasonal employment. There are a very few finely tailored exceptions as follows:
- casual employment; not for the purpose of the employer's trade or business;
- amateur sports;
- agriculture or farm work where aggregate payroll is less than $10,000/year;
- family member dwelling in the home if their wages are not included in payroll;
- work in the home (doesn’t include work at home performed for an employer);
- sole proprietor or partner owner or partner owners of an unincorporated business;
- real estate broker or real estate salesperson on commission
As mentioned, contracting out does not automatically relieve a hiring contractor of insurance requirements. The law presumes an employment relationship with any worker hired or contracted by you. This presumption arises from the legal definition of “employer”, thus it is termed “statutory employer” liability. The contracting business bears the burden of proof if they wish to establish that the worker was an “independent contractor” and not an employee for whom they bear liability. The legal presumption of an employment relationship may be rebutted by proof that the subcontractor is truly an “independent” contractor.
Vermont workers’ compensation law considers whether an individual is an independent contractor on a case by case basis. Relevant information includes the work of the contracting business and the work performed by the subcontractor. It specifically asks:
- who controls the work being performed?
- is the work being performed normally carried out by an employee of business?
- are the worker’s work activities integral to the employer's regular business?
If you control a subcontractor’s work, or, if the Sub’s work is work that is normally performed by or part of your business, then your subcontractor is considered an employee and coverage is required.
Business owners should be aware of their insurance obligations. Failure to heed the legal requirements could result unforeseen costs, administrative sanction, personal liability for workers' compensation benefits and/or criminal prosecution.
The Department of Labor will investigate supported allegations of an employer's violation of its insurance obligations. When appropriate, a business may be ordered to obtain and maintain workers' compensation insurance, may be closed until workers' compensaation insurance is obtaind, and/or may be assessed administrative penalties. In addition, the Department of Labor may make referral to the Attorney General's office or the Department of Banking, Insurance, Securities and Health Care Administration Insurance Division for consideration of further actions.
If you suspect that a business is operating without workers' compensation insurance in violation of the law, you may file a Report of Employer Conducting Business Without Workers' Compensation Insurance.
If you suspect that a business is committing fraud by intentionally underreporting payroll or misclassifying employees as "independent contractors" or "subcontractors" in order to lower its insurance premiums, you may file a Report of Suspected Workers' Compenastion Insurance Fraud.