1 in 5 Louisiana Businesses Breaking Workers Compensation Laws?On February 9, 2009 By Scott Wolfe Jr
A recent survey by the Louisiana Workforce Commission found that 1 in 5 Louisiana companies may be violating the state’s workers compensation laws.
The unsettling survey is part to blame for the state’s new fraud program, which is aimed at identifying and bringing into compliance businesses not providing workers’ compensation coverage.
As reported by nola.com, violators will face penalties of $250 per employee, per incident. Repeat offenders could face criminal penalties and have the businesses shut down
The fraud program should be a warning call to non-complying contractors in Louisiana.
While the commissions hasn’t singled out the industry, it’s safe to assume that contractors will be the target of the commissions new fraud program. The construction industry faces some of the highest workers comp rates, and most frequently encounter the fine line between an “employee” and an “independant contractor.”
When describing fraud problems, Chris Broadwater, director of the LA Workforce Commission, told nola.com that many business list “workers’ jobs as less hazardous than they are, or by claiming that their employees are independent contractors.”
Provided examples of high and low workers comp rates were, not surprisingly, between construction workers (up to $13 per $100 paid) and clerical workers (60 cents per $100 paid).
The difference is clearly huge, and perhaps it’s why the first comment to nola.com’s story on the fraud program complained about the cost of compliance:
Well, bring the rates down and maybe businesses here in Louisiana could afford to stay in business with less exorbitant rates from a monopoly insurer for all new businesses (LWCC). Small businesses are often forced into questionable cutbacks to feed the “gimmie” attitude of our state!
The comment likely resonates with contractors in Louisiana, who are competing in a down construction market with other contractors who aren’t providing workers compensation (remember, only 20% of businesses in Louisiana do). It’s seems nearly impossible to compete with other businesses who – from the start – can discount their bids by 13-15%!
Not surprisingly, construction companies have substantial motivation to classify workers as independent contractors rather than employees.
Employee v. Independent Contractor
The Louisiana Workforce Commission has written an online article about this very problem, reminding contractors that the difference between employees and independent contractors is not a subjective determination – but something subject to specific statutory criteria.
With regard to the applicable statute, the Louisiana Workforce Commission states:
La. R.S. 23:1021 defines an independent contractor as any person who renders a service, other than manual labor, for a specified recompense for a specified result either as a unit or as a whole, under the control of his principal as to the result of his work only, and not as to the means by which such result is accomplished. Independent contractors who meet this definition are not covered by the Workers’ Compensation Act.
Interestingly in Louisiana, a key factor in determining whether someone is an employee or independent contractor turns on whether they are required to perform “manual labor.”
According to the article, Louisiana courts “have defined ‘manual labor’ liberally, looking at the hands-on feature of labor combined with the strenuous quality of the work to determine whether a task is manual or not.”
If a substantial part of an independent contractor’s work time is spent in manual labor, your inquiry is over, and the worker will be covered by the provisions of the Workers’ Compensation Act.
The workers compensation laws in Louisiana are confusing, and your business may be avoiding the law simply because it’s so difficult to understand. However, the cost of non-compliance is great. Not only will your business be penalized by the commission, but you’ll also find yourself liable if someone gets injured on the job.
The Office of Workers’ Compensation Compliance Division has set up a number for businesses with questions about the requirements at 225-342-5658. Fraud can be reported to the Fraud Division at 225-342-2226.