American Association of State Compensation insurance Fund
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member fund.

CopperPoint Mutual Insurance Company
Phone: (602) 631-2000
Address: 3030 North Third Street
Phoenix, AZ   85012

State Compensation Insurance Fund
Address: 333 Bush Street
Suite 800
San Francisco, CA   94104

Pinnacol Assurance
Phone: (303) 361-4000
Address: 7501 East Lowry Boulevard
Suite 800
Denver, CO   80230-7006

Hawaii Employers' Mutual Insurance Co. Inc.
Phone: (808) 524-3642
Address: 1100 Alakea Street
Suite 1400
Honolulu, HI   96813

Idaho State Insurance Fund
Phone: (208) 332-2100
Address: 1215 West State Street
P.O. Box 83720
Boise, ID   83720-0044

Kentucky Employers Mutual Insurance
Phone: (859) 425-7800
Address: 250 West Main Street Suite 900
P.O. Box 83720
Lexington, KY   40507-1724

Louisiana Workers' Compensation Corporation
Phone: (225) 924-7788
Address: 2237 South Acadian Thruway
P.O. Box 83720
Baton Rouge, LA   70808

Maine Employers Mutual Insurance Company (MEMIC)
Phone: (207) 791-3300
Address: 261 Commercial Street
P.O. Box 11409
Portland, ME   04104

Chesapeake Employers’ Insurance Company
Phone: (410) 494-2000
Address: 8722 Loch Raven Boulevard
P.O. Box 11409
Towson, MD   21286-2235

SFM Mutual Insurance Company
Phone: (952) 838-4200
Address: 3500 American Boulevard West Suite 700
P.O. Box 11409
Bloomington, MN   55431-4434

Missouri Employers Mutual Insurance
Phone: (800) 442-0590
Address: 101 N Keene St
P.O. Box 11409
Columbia, MO   65201

Montana State Fund
Phone: (406) 495-5015
Address: 855 Front Street
P.O. Box 4759
Helena, MT   59604-4759

New Mexico Mutual Group
Phone: (505) 345-7260
Address: 3900 Singer Boulevard NE
P.O. Box 4759
Albuquerque, NM   87109

New York State Insurance Fund
Phone: (212) 312-7001
Address: 199 Church Street
P.O. Box 4759
New York, NY   10007

Workforce Safety and Insurance
Phone: (701) 328-3800
Address: 1600 East Century Avenue Suite 1
P.O. Box 4759
Bismarck, ND   58506-5585

Ohio Bureau of Workers Compensation
Phone: (800) 644-6292
Address: 30 West Spring Street
P.O. Box 4759
Columbus, OH   43215-2256

CompSource Mutual Insurance Company
Phone: (405) 232-7663
Address: 1901 North Walnut Ave.
P.O. Box 53505
Oklahoma City, OK   73152-3505

State Accident Insurance Fund (SAIF)
Phone: (503) 373-8000
Address: 400 High Street SE
P.O. Box 53505
Salem, OR   97312-1000

Pennsylvania State Workers Insurance Fund
Phone: (570) 963-4635
Address: 100 Lackawanna Avenue
P.O. Box 5100
Scranton, PA   18505-5100

Beacon Mutual Insurance Company
Phone: (401) 825-2667
Address: One Beacon Centre
P.O. Box 5100
Warwick, RI   02886-1378

South Carolina State Accident Fund
Phone: (803) 896-5800
Address: P.O. Box 102100
P.O. Box 5100
Columbia, SC   29221-5000

Texas Mutual Insurance Company
Phone: (800) 859-5995
Address: 6210 East Highway 290
P.O. Box 5100
Austin, TX   78723-1098

Workers Compensation Fund
Phone: (800) 446-2667
Address: 100 West Towne Ridge Parkway
P.O. Box 2227
Sandy, UT   84070

Washington Department of Labor and Industries
Phone: (360) 902-5800
Address: P.O. Box 44001
P.O. Box 2227
Olympia, WA   98504-4001

Wyoming Division of Workers Safety & Compensation
Phone: (307) 777-7159
Address: Cheyenne Business Center
1510 East Pershing Boulevard
Cheyenne, WY   82002

Workers Compensation Board - Alberta
Phone: (780) 498-3999
Address: 9925-107 Street
P.O. Box 2415
Edmonton, AB   T5J 2S5

Workers Compensation Board of British Columbia (WORKSAFEBC)
Phone: (604) 273-2266
Address: P.O. Box 5350 Station Terminal
P.O. Box 2415
Vancouver, BC   V6B 5L5

Manitoba Workers Compensation Board
Phone: (204) 954-4321
Address: 333 Broadway
P.O. Box 2415
Winnipeg, MB   R3C 4W3

Phone: (506) 632-2200
Address: 1 Portland Street
P.O. Box 160
Saint John, NB   E2L 3X9

Workers Compensation Board of Nova Scotia
Phone: (902) 491-8999
Address: 5668 South Street
P.O. Box 1150
Halifax, NS   B3J 2Y2

Prince Edward Island Workers Compensation Board
Phone: (902) 368-5680
Address: 14 Weymouth Street
P.O. Box 1150
Charlottetown, PE   C1A 7L7

Saskatchewan Workers Compensation Board
Phone: (306) 787-4370
Address: 200 - 1881 Scarth Street
P.O. Box 1150
Regina, SK   S4P 4L1

Puerto Rico State Insurance Fund Corporation
Phone: (787) 793-5959
Address: G.P.O. Box 365028
P.O. Box 1150
San Juan, PR   00936-5028
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AASCIF Newsletter

The Underground Economy: Employee Misclassification in Workers' Compensation

By Ryan Pinkston, CPCU, Underwriting Manager at KEMI

The underground economy is a term you may or may not have heard before. It refers to those individuals and businesses that deal in cash or use other creative schemes to conceal their activities and true tax liability from the government and other regulating bodies. So, what does this have to do with workers’ compensation insurance?

Imagine coming upon a construction site and seeing six to eight workers roofing a building. Which one is the independent contractor? All of them…right? Unfortunately, that’s what a lot of companies want you to believe. The Internal Revenue Service (IRS) defines an independent contractor as someone who is self employed and free from control or direction from others. I am not singling out the construction industry, but from my experience, this is where I most commonly see employee misclassification. Often times, employers deliberately misclassify employees to save money on payroll taxes, unemployment insurance, employee benefits, and, most importantly to us, workers’ compensation insurance premiums.

What are the negative impacts specifically regarding workers’ compensation insurance? First and foremost, the primary reason employee misclassification occurs is to obtain a lower premium. Rules regarding independent contractors differ from state to state. I couldn’t begin to tell you how many times I have been told, “Well, I pay him with a 1099, so he’s independent.” Most employers believe the IRS definition is universal and applies in all situations. If only it was that easy! In Kentucky, the four most prominent factors when determining employment status are as follows: 1) Nature of the work as related to the business generally carried on by the contractor/employer; 2) Extent of control exercised by the contractor/employer; 3) Professional skill of independent contractor/employee; and 4) True intent of the parties. Notice that “method of payment” was not included. While it is taken into consideration, method of payment is not one of the most crucial factors. Although these factors are reviewed separately, determining status is done after these four, and others (including method of payment), are considered in totality.

Secondly, depending on which state you are in, determining independent contractor status is subjective. Without concrete rules identifying exactly what an independent contractor is, it becomes difficult to establish consistency from a companywide perspective. After all, consider the various departments within a typical workers compensation insurance company that deal with this issue daily. Underwriting reviews a risk on the front end to understand an exposure they are being asked to insure. Claims examiners must determine compensability based on their review and investigation. Premium audit will revisit employment status on the back end of a policy period, potentially creating large, unexpected additional premium charges. And legal departments are often left to litigate files based on decisions made by underwriting, claims, and/or premium audit.

Finally, delays in processing, policy issuance, claims payments, etc. can be challenging tasks to overcome with your customers, claimants, and distribution partners. Some carriers offer tools or questionnaires that aid in the process of determining employment status. Others review “Independent Contractor Agreements” and make determinations on how valid those will be in front of an administrative law judge. Aside from subjective review, as previously discussed, requesting, waiting, and reviewing such information can cause aggravation for all parties involved.

How do we solve the ongoing issues of employee misclassification?

Unfortunately, I see no universally accepted simple solution. As previously mentioned, different states have different rules when it comes to determining independent contractor status. The best, but probably most complex, solution is through legislation at the state or federal level. A certificate or authorization program at the state or federal level would completely disregard any subjective review at the company level. It would turn what is one of the grayest areas in workers’ compensation into a concrete “yes” or “no” answer. Ideally, if the subject individual did not qualify, or become certified, as an independent contractor, then he or she is automatically considered to be an employee for the entity paying them.

Government intervention would consist of hurdles and obstacles that states or carriers would have to overcome, and they may be insurmountable, or at the very least, time consuming. Not only would this solve the problems related to workers’ compensation, but also the issues of tax evasion, unemployment insurance, and employee benefits. While I think this might be the best solution, I am also not naïve enough to believe this is a quick fix. We appear to be years away from this coming to fruition, depending on the varying amount of momentum it gets at each state level. In the meantime, we as workers’ compensation professionals should continue battling and doing our part to curtail employee misclassification and the underground economy.




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