Avoid Skating on Thin Ice with Your Independent Contractors

by Dan Foster

I

ce arenas and contracted instru- ctors or coaches share a symbiotic relationship that helps the rink

business thrive. Coaches, trainers, referees and scorekeepers are commonly hired as contractors to meet specific rink needs. Using independent contractors (ICs) to supplement staffing needs allows a rink operator to draw on the expertise of an instructor without increasing payroll or personnel expenses. Utilizing ICs requires navigation of complex rules and laws that govern the relationships between businesses and contracted employees. When set up properly, the use of ICs is a win-win for both parties. When set up incorrectly, it creates unnecessary expenses and unanticipated fines or penalties. If the IRS determines that an IC is misclassified it could result in the payment of back wages and benefits. In 2015, the Department of Labor collected $74 million in back wages due to misclassification of ICs. Tis article will attempt to cover the key areas of concern for rink operators and independent contractors.

W-2 VS 1099

As an employer, you manage and direct an employee’s work, schedule, dress, attitude and much more. Not so with an IC. Employees must complete a W-2 form, which triggers tax, insurance and other benefits paid as a result of employment. ICs receive a 1099 tax form and are responsible for their own expenses, taxes, insurance and benefits. Many of you are familiar with the IRS 20-Point Checklist (found at irs.gov) for identifying direct employees versus ICs. While it is an excellent reference tool, it is not comprehensive. Many rink operators are under the

impression that getting a signed contract from an IC is sufficient to protect them. A contract does not guarantee protection from misclassification, especially if the IC is injured in the course of work. Since 2009, the federal government has sought to tighten up the loopholes that ICs fall through when it comes to taxes, insurance and benefits. Tey have solicited states to help with this. In response, the National Association of Insurance Commissioners, the body

* An Overview of Workers’ Compensation Independent Contractor Regulatory Approaches, NAIC/IAIABC Joint Working Group of the Workers’ Compensation (C) Task Force, March 17, 2009.

8 ISI EDGE SPRING 2017

Only ICs who are affiliated with a professional organization (such as ISI) and have liability insurance and at least accident medical coverage should be retained. They can additionally insure your rink for any claims arising out of their activity or their injuries.

of state insurance commissioners, came out and said “jurisdictions generally prohibit a worker from waiving the legal right to file a workers’ compensation claim merely by agreeing in advance to be treated as an independent contractor rather than as an employee.*” Contract or no contract, if there is confusion over