QUICK LAW CHECK-UP: Does your North Carolina company have workers’ compensation insurance or is it exempt?
1. Three (3) or more employees triggers requirement for workers compensation insurance – corporate officers are included.
2. Part-time employees are counted as full employees for purposes of the WCA threshold;
3. Independent contractors can be counted as employees under certain circumstances – call us for a free review: 919-964-0070.
October 24, 2014 – North Carolina companies are sometimes confused about workers’ compensation insurance coverage. Small employers may wonder they must buy private insurance and participate in the state’s worker’s compensation system. Large employers may wonder about which employees are covered and whether they must include independent contractors. This article attempts to shed some light on this subject and alleviate the confusion.
Chapter 97 of the North Carolina General Statutes contains the Workers’ Compensation Act (“WCA”). It states that employers with more than three (3) employees are required to secure workers’ compensation insurance. But what qualifies as an employee? Does that definition include officers, owners, shareholders, part-time workers, independent contractors?
A. Who is Covered Under the Definiton of Employee in N.C.G.S. 97-2.
The definition of “employee” includes officers of a corporation – i.e. officers are counted towards the three employee threshold and must secure WCA coverage. However, many people and attorneys do not realize that the corporation may exclude those officers from coverage in any particular insurance contract. However, these officers are still counted as employees for purposes of the WCA three employee threshold. North Carolina General Statute 97-2 states:
Any such executive officer of a corporation may, notwithstanding any other provision of this Article, be exempt from the coverage of the corporation’s insurance contract by such corporation’s specifically excluding such executive officer in such contract of insurance, and the exclusion to remove such executive officer from the coverage shall continue for the period such contract of insurance is in effect, and during such period such executive officers thus exempted from the coverage of the insurance contract shall not be employees of such corporation under this Article.
Obviously then, an employer who would prefer not to purchase workers’ compensation coverage for its officers, will want to exclude any corporate officers using this technique.
2. Sole Proprietorships, Limited Liability Companies, and Partnerships.
In contrast, sole proprietors, limited liability members, and partners in a partnership, are excluded by definition, but may elect to be covered under any insurance contract by affirmative election. N.C.G.S. 97-2 states:
Any sole proprietor or partner of a business or any member of a limited liability company may elect to be included as an employee under the workers’ compensation coverage of such business if he is actively engaged in the operation of the business and if the insurer is notified of his election to be so included. Any such sole proprietor or partner or member of a limited liability company shall, upon such election, be entitled to employee benefits and be subject to employee responsibilities prescribed in this Article.
Election under this section could be important if the sole proprietor, partner, or LLC member is already paying for workers’ compensation coverage and desires to cover owners or officers in case of an accident.
B. Are Part-Time Employees and Independent Contractors Covered under the Definition of Employee for purposes of the North Carolina Workers’ Compensation Act?
The issue of part-time employees is simple – they are included in the computation of the number of employees for purposes of coverage of the Workers Compensation Act. The issue of the definition of what constitutes an “independent contractor” is more complex, and too complex for a complete discussion of all the variables. However, there are two important aspects to consider first:
1. An employer who hires independent contractors, may nevertheless be subject to workers’ compensation laws and treated as if those independent contractors were employees, based on a number of factors including the degree of control over the independent contractors.
2. An employer who has independent contractors, may be liable for injuries sustained by the employees of the independent contractor under certain circumstances including the lack of insurance by the independent contractor.
Independent contractors are not covered by the Workers Compensation Act. Now with regard to the determination of whether an independent contractor will be treated as effectively and legally an “employee” for purposes of the Workers’ Compensation Act, there is a multi-factor test. According to the Court of Appeals in Archie v. Kirk, 217 N.C.App. 598 (2011), the following factors must be considered when determining whether an employee is an independent contractor; the person employed: (1) is engaged in an independent business, calling, or occupation; (2) is to have the independent use of his or her special skill, knowledge, or training in the execution of the work; (3) is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis; (4) is not subject to discharge because he or she adopts one method of doing the work, rather than another; (5) is not in the regular employ of the other contracting party; (6) is free to use such assistants as he or she may think proper; (7) has full control over such assistants; and (8) selects his or her own time.
Each factor is considered along with the circumstances, and no one particular factor is determinative of whether a worker is an employee or independent contractor. Employers are particularly vulnerable these days on this issue and should have an attorney review their practices.
(c) 2014 – Gregory S. Connor – Connor Law Group