The penalties for noncompliance could be catastrophic
It is a common practice in the marijuana industry to label workers as independent contractors. Many employers want this designation to avoid having to withhold Social Security and income taxes, pay unemployment taxes and other assessments, or pay workers’ compensation insurance premiums. Many workers also want this designation to avoid having taxes withheld from their paychecks. They want to be independent; that is, until they get hurt.
When a worker is injured and receives medical treatment, the health care provider always asks if the injury occurred at work; if so, they typically ask the worker to sign a claim form to help ensure the provider gets paid.
In Oregon, this is Form 827; by signing it, a claim has been filed. If the employer does not have workers’ compensation insurance coverage, the claim must be sent to the Oregon Workers’ Compensation Division for investigation.
The investigation examines the employer’s relationships with its workers to determine whether the employer has any subject workers, not solely whether the injured worker is subject or is an independent contractor. If the business has any worker who performs services for remuneration and the worker is subject to the direction and control of the employer, that business is probably a subject employer and must have workers’ compensation coverage. Remuneration means payments of any kind, including exchanging product or trade-out services in lieu of cash.
Family members, friends and relatives are not exempt, unless they are owners of the business. If the business has a secretary, receptionist, bookkeeper or budtender, they are likely not exempt workers and the business is subject. The so-called “independent contractor” is also often not exempt. Independent contractors must have their own business established or work for a separately established business, and the contractor must meet several other criteria to meet the test of independence.
The list of criteria is not inclusive, but some elements are: setting one’s own hours; using one’s own equipment; maintaining a separate business location; performing the service in the manner of one’s own choosing; being contracted for the completed job as opposed to continuous services earning hourly or piecemeal payments; the right to hire assistance; whether a license is required to perform the service; and whether the job is a separate calling or is a regular part of the hiring entity’s business.
To find out if your Oregon business is required to have workers’ compensation coverage, contact the Oregon Workers’ Compensation Division at 503-947-7815 or by email at firstname.lastname@example.org.
To learn more about Oregon workers’ compensation insurance options, contact the Oregon Small Business Ombudsman at 971-283-0997 or by email at email@example.com.
Although this article is specific to Oregon laws, other states have similar requirements that should demand the attention of business owners everywhere.
An example I like to use is as follows: Let’s say I go to the Secretary of State’s web page and register a business called Bob’s Burger Flippers. On weekends I grill burgers on the street corner and sell them for five bucks apiece, using my own equipment, setting my own hours, bearing the burden of risk and reaping the rewards of success. While I am performing that task, I am an independent contractor. However, on Mondays and Tuesdays, I work at McDonald’s flipping burgers and on Wednesdays and Thursdays, I work at Burger King flipping burgers. While flipping burgers at McDonald’s or Burger King, I am an employee of those establishments, not an independent contractor.
This analogy often applies in the marijuana industry to trimmers and other seasonal workers, who might work for several growers during harvest season. It is possible to be an independent contractor while performing those tasks, but often the separation is not properly established and the grower is found to be a subject employer.
So as a business owner, what can you do to protect yourself? It’s simple: get a workers’ compensation insurance policy. Even if you do not have a regular workforce or you consider all your workers to be independent contractors, it is a sound business practice to have a policy in place. In the event that one of those workers files a claim against you, you can simply forward the claim to your insurer. The insurer will be responsible for any claims costs, including if litigation is required to determine whether the worker is independent or not. Workers’ compensation premiums are based on wages paid, so if you do not have a policy, the cost of litigation in a single case could easily surpass what your premium costs would have been.
The penalties for noncompliance are high and could be catastrophic. In addition to penalties for avoiding premiums, if an employer is found to be subject and does not have coverage, the owners of the business are personally responsible for any claims costs. The owners are not protected by any corporate shield and the claims costs are not dischargeable in bankruptcy.
The most heartbreaking example I’ve encountered is that of a mom-and-pop accountant who employed a lifelong family friend as a part-time secretary. While taking the company’s mail across the street to the post office, the friend was hit by a car, which meant it was a work-related event. Many months in the hospital left the lifelong friend permanently disabled and left the mom-and-pop accountant with $540,000 in claims costs, to date. As noted, Mom and Pop were not protected by the corporate shield of their LLC and those costs are not dischargeable in bankruptcy.
As with any business, the legal marijuana industry has government regulations and legal issues to navigate, in addition to the daily responsibilities and duties of building a business. Protect your investment and the hard work you have already put in by making sure you have the required insurance coverage. Workers’ compensation insurance protects employees and employers. If you have any subject workers — even just one — you are required to have workers’ compensation coverage. Coverage exists to protect you, your business and your employees if any are hurt while working for you.
Additionally, benefits for workers who are injured at insured employers are limited by the exclusive remedy provisions in the law. This means a worker is entitled only to have the medical bills paid, plus any indemnity payments such as time-loss and permanent disability awards. Employers who do not have insurance may be sued for other harms such as negligence or pain and suffering. In exchange for these lawsuit protections, legislatures in nearly every state have enacted laws requiring all subject employers to have workers’ compensation insurance. This requirement helps ensure a level playing field.
Bob Hamre is a compliance specialist in the Oregon Workers’ Compensation Division. For more information, contact the Oregon Workers’ Compensation Division, or the agency in your state that regulates workers’ compensation.