Medical spas and integrative medicine centers often have to determine how to classify clinicians and staff as employees vs. as independent contractors.
Our previous post looked at the question:
Should a physician who contracts with an integrative care center or medical spa be classified as an employee or independent contractor?
While many states copy the IRS test, others have variations. Curiously, Vermont has its own unique take on the classification part of the question.
The Vermont Department of Labor has two separate divisions that review an “Employee versus Independent Contractor” working relationship. There are varying definitions or requirements specific to the program. Please select the specific program for further details on this topic.
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.
“Employee vs. Independent Contractor” – Unemployment Compensation coverage
The term "employee" is not defined in statute. When we refer to an individual as an "employee" that means an individual who is entitled to be covered for unemployment purposes. An "employee" for unemployment insurance purposes may include someone who is otherwise considered to be an "independent contractor". In general, it is the nature of the relationship between an employer and the individuals who provide services to the employer that determines whether or not they are employees.
The services may be performed on a full-time, part-time, temporary, seasonal, or probationary basis. They may be performed on or off your premises or in the employees’ own homes.
Because it is the nature of the relationship that controls whether someone is an "employee" for unemployment purposes, a "contract" does not change the relationship from employer/employee to something else. The "ABC" test of the Vermont Statute Annotated, Title 21, Chapter 17 determines if the individual is an employee for unemployment insurance purposes.
In order to determine whether an employer is required to provide unemployment insurance coverage to an individual, the department utilizes an employment "test". Under statute and case law, an "employment" relationship will exist (unemployment insurance coverage is required) unless and until the employer is able to demonstrate that all three parts of the so-called "ABC Test" are met. Those tests are:
A. Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and
B. Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
C. Such individual is customarily engaged in an independently established trade, occupation, profession or business.
The Vermont Legislature chose to use the ABC test, which is much more inclusive than other employment "tests", in order to ensure broad unemployment insurance coverage. There has been significant case law developed over the years that helps define situations where unemployment coverage must be provided. The Vermont Supreme Court has made it clear that direction and control will exist where the employer has the "right" to provide direction and control, regardless of whether such direction and control is actually exercised. The employers usual course of business is any business activity the employer chooses to engage in. Likewise, the employers place of business is all places where the employer conducts its business, not just the main location or office from which the employer conducts its business.
Finally, being independently established means being established in a similar type of occupation or trade as the one being examined, and generally the individual must have some history of providing similar services for others in order for the "C" part of the test to be met.
The ABC Test vs. the IRS Independent Contractor Test
The Internal Revenue Service uses a different, less inclusive test to determine if an individual is an employee or an independent contractor. Basically, the IRS test is similar to the "A" part of the unemployment ABC Test and only looks at whether the employer provides direction and control over the services being performed. The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These relevant facts fall into three main categories; behavioral control; financial control; and relationship of the parties. It is possible to reach different conclusions on the employment status of an individual when different tests are used.
Employers should understand that the department will follow Vermont law and use the ABC Test to determine if a worker is an employee for unemployment insurance purposes, and will be liable to report wages paid to and pay taxes on those wages unless all 3 parts of the ABC test are met. This is true even if the IRS "Evidentiary Factors" Test has a different outcome.
Misclassification of employees is the single most common problem with regard to the proper reporting of individuals for unemployment insurance purposes.
§ 692. Penalties
(a) If after hearing under section 688 of this title, the commissioner determines that an employer has failed to comply with the provisions of section 687 of this title, the employer shall be assessed an administrative penalty of not more than $100.00 for every day the employer neglected to secure liability.
(b) Additionally, an employer who fails to comply with the provisions of section 687 of this title for a period of five days after notice from the commissioner shall be assessed an administrative penalty of not more than $250.00 for every day after five days that the employer fails to secure workers’ compensation coverage as required in section 687 of this title. The commissioner may, after giving notice and after the expiration of the five-day period, post a notice at a conspicuous place on the premises of the employer informing the employees that their employer has failed to comply with the provisions of section 687 of this title and ordering the premises closed until workers’ compensation insurance is secured.
(c) If any employer fails to secure or retain workers’ compensation insurance within two years after receiving an order to obtain insurance or a notice that the commissioner intends to order the premises closed as described in subsection (b) of this section, without further notice the commissioner shall order the premises of that employer closed and that all business operations cease until the employer has secured workers’ compensation insurance. (Amended 1977, No. 182 (Adj. Sess.), § 17, eff. May 3, 1978; 1985, No. 194 (Adj. Sess.), § 8; 1993, No. 225 (Adj. Sess.), § 17; 1997, No. 19, §§ 8, 9; 2007, No. 57, § 2.)
Title 21: Labor
Chapter 9: EMPLOYER’S LIABILITY AND WORKERS’ COMPENSATION
21 V.S.A. § 687. Security for compensation
§ 687. Security for compensation
(a) Employers, not including state, county or municipal bodies, shall secure compensation for their employees in one or more of the following ways:
(1) By insuring and keeping insured the payment of such compensation with any corporation or reciprocal or interinsurance exchange authorized to transact the business of workers’ compensation insurance in this state;
(2) By obtaining and keeping in force guarantee insurance with any company authorized to do such guarantee business within the state;
(3) By establishing and maintaining to the satisfaction of the commissioner the employer’s financial responsibility necessary to secure payment by the employer of compensation according to the terms of this chapter. The department of banking, insurance, securities, and health care administration shall provide technical assistance and a recommendation on each self-insurance application to the commissioner. For purposes of this subdivision, the commissioner shall, after consultation with the commissioner of banking, insurance, securities, and health care administration, adopt rules and impose terms and conditions, including but not limited to surety bonds, cash deposits or reserves and excess risk insurance, as necessary to assure the same security for compensation as provided under contract for workers’ compensation or guarantee insurance. The fund shall be free from attachment or trustee process so long as any liability for the compensation exists.
(4) By participating to the satisfaction of the commissioner of labor in a nonprofit, self-insurance corporation approved by the commissioner of banking, insurance, securities, and health care administration under this chapter.
(b) In the event an employer fails to secure workers’ compensation as required by this section and an employee reasonably believes that he or she has received a personal injury by accident arising out of and in course of employment with that employer, then:
(1) If the employer is a corporation the officers and majority stockholders of the corporation shall be personally liable for any benefits owed to the injured employee under this chapter.
(2) If the employer is a partnership, the partners shall be personally liable for any benefits owed to the injured employee under this chapter.
(3) If the employer is neither a corporation nor a partnership, the principals, executive officers or controlling parties of the business, or all of these, shall be personally liable for any benefits owed to the injured employee under this chapter.
(c) Upon filing a claim for benefits under this chapter or if the employee elects to bring a civil action pursuant to subsection 618(b) of this title, the employee may obtain a lien against the property of the employer or the personal property of any persons described in subsection (b) of this section.
(d) The remedies provided in this section shall be in addition to any other remedies and penalties available under law.
(e) All insurance carriers authorized to write workers’ compensation insurance coverage in Vermont shall make available, at the written request of the employer, a workers’ compensation insurance rate that contains a deductible provision that binds the employer to reimburse the workers’ compensation insurer for at least the first $500.00 of benefits, medical or indemnity, due to an injured employee. Claims shall be adjusted and paid by the insurer, and the employer shall reimburse the insurer for the amount of the deductible. (Amended 1971, No. 31, § 4, eff. March 31, 1971; 1981, No. 165 (Adj. Sess.), § 6; 1985, No. 194 (Adj. Sess.), § 10; 1989, No. 225 (Adj. Sess.), § 25(b); 1993, No. 225 (Adj. Sess.), §§ 14, 28a; 1995, No. 180 (Adj. Sess.), § 38(a); 1997, No. 19, § 7; 2005, No. 103 (Adj. Sess.), § 3, eff. April 5, 2006; 2007, No. 208 (Adj. Sess.), § 9.)
13 V.S.A. § 2025. Employers without workers’ compensation insurance; criminal sanction
§ 2025. Employers without workers’ compensation insurance; criminal sanction
Any employer who fails to comply with the provisions of 21 V.S.A. § 687 shall be fined not more than $2,500.00 or imprisoned for up to one year, or both. For the purposes of this section, the term employer includes the owner or operator of a business, the officers of a corporation and the partners in a partnership. (Added 1997, No. 19, § 10.)
Healthcare & FDA attorney Michael H. Cohen is a thought leader in healthcare law & FDA law, pioneering legal strategies in healthcare. wellness, and lifestyle markets. As a corporate and transactional lawyer, FDA regulatory attorney who also handles healthcare litigation, healthcare mediation and healthcare arbitration, and international healthcare & wellness law speaker, Los Angeles / Bay Area healthcare & FDA lawyer Michael H. Cohen represents conscious business leaders in a transformational era. Clients seek healthcare & FDA attorney Michael H. Cohen’s legal savvy on all aspects of business law, healthcare law, and FDA law, including:
- business structure and entity formation (corporations, partnerships, LLCs)
- health care facility licensing issues (home health agency, hospice, imaging center)
- practitioner licensing matters;
- physician and allied & complementary medicine provider employment contracts and independent contractor agreements
- e-commerce (including online health education and mobile medical apps) legal
- copyright & trademark, licensing
- informed consent and liability risk management
- HIPAA and confidentiality and privacy issues
- Stark, self-referral, anti-kickback, patient brokering, and fee-splitting questions
- cosmetics claims, labeling
- OTC drug & homeopathics FDA legal review
- medical device FDA legal issues
- dietary supplement claims and labeling
- insurance reimbursement and Medicare issues for healthcare practitioners
- concierge medicine legal issues
- telemedicine legal, m-health, and digital health law
- business law and health care regulatory compliance arenas
- healthcare meditation and healthcare arbitration.
Whether advising start-ups or established companies, Los Angeles / San Francisco / Bay Area healthcare & FDA attorney Michael H. Cohen brings his entrepreneurial spirit and caring insight to cutting-edge legal and regulatory challenges. The Michael H. Cohen Law Group counsels healthcare practices, entities, and companies, such as clinical laboratories, physicians, psychologists, chiropractors, acupuncturists, naturopaths, nurses, healers, medical spas, sleep centers, addiction treatment centers, surgery centers, anti-aging centers, integrative medicine clinics, anti-aging practices, mental and behavioral health counselors, medical service organizations, telemedicine and mobile (m-health) companies, online health ventures, stem cell and cord blood entities; and other health and wellness enterprises. Healthcare and FDA lawyer Michael H. Cohen is admitted to practice in California, Massachusetts, New York, and Washington, D.C. Our clientele is national and international, and we also counsel healthcare and FDA clients in Los Angeles, San Diego, Ventura, San Francisco Bay Area, San Jose, Santa Barbara, Sacramento, San Bernadino, Alameda, Contra Costa County, and other California cities and counties. Contact our Los Angeles, Ventura County, & San Francisco Bay Area FDA & healthcare attorneys today if you need a telemedicine lawyer, concierge medicine lawyer, HIPAA lawyer, FDA lawyer or FDA regulatory consultant (dietary supplements, medical devices, cosmetics, OTC drugs), advertising compliance lawyer, healthcare mediator or arbitrator, concierge medicine attorney, management services organization attorney, or other specialized healthcare legal advice or FDA regulatory consulting.