Are your independent contractors classified correctly?

CA Supreme Court Adopts a New Tougher Standard

written by Rebecca gomezdownload

For the past several decades, California courts utilized the multi-factor test to determine whether or not a worker is classified as an employee or independent contractor. The multi-factor test focused on the level of control the employer retained over the worker and other factors, such as the right of employer to discharge individual, how the individual is paid, length of services, and the parties’ intent.

Last month, the California Supreme Court abandoned the multi-factor test and adopted the “ABC Test.” The “ABC Test” imposes a tougher legal standard to determine whether or not an individual is truly an independent contractor. The legal effect for this ruling places the burden on the employer to establish that a worker is not an employee by proving that the worker performs work that is “outside the usual course” of the employer’s business.

Under the “ABC Test,” an employee, generally, would be viewed by others as working in the hiring entity’s business and not for the worker’s own independent purposes. The Court explained, the term “employee” for the purpose of wage orders does NOT include workers who provide only occasional services unrelated to an organization’s primary line of business and who have their own independent business.

The “ABC Test”

Under the “ABC Test” a worker is presumed to be an employee, unless:

A. The individual is free from control and direction of the hiring entity (both by contract and in fact)

  • The individual must be free from control. If an employer dictates how or where the work gets done, or who does the work–the individual is an employee.
  • Although an employer may put a “when” on work by establishing a deadline, they should not dictate work be done on certain days or certain hours.

B. The individual performs work that is outside the usual course of the hiring entity’s business;

  • The work individual performs must not be essential to the offerings of the business.
    • Cooks and servers for restaurants perform work that are essential to the business and therefore are employees, not independent contractors.
    • Someone who is hired to design a new menu or reupholster their booths do not perform work essential to the restaurant business, therefore can be classified as independent contractors.

C. Individual engages in an independently established trade, occupation, or business.

  • Is the worker in business for themselves doing the kind of work that the organization has hired them?
  • The focus of this element is whether the individual made money from other sources, besides the employer, doing the same kind of work they offered to the employer.
    • The more evidence indicating the individual has an established business, the stronger the argument for an independent contractor

All three parts must be satisfied in order to properly classify an individual as an independent contractor. If the employer cannot establish any one factor, the individual is an employee for wage purposes.

Below are some examples of True Independent Contractors:

  • Independent Plumbers
  • Independent Electricians
  • Independent Accountants
  • Sole Practitioner Attorneys

What should your organization do?

Since the new standard is case law, coming from the court not legislature, the standard takes effect immediately. Your organizations should mitigate your liability, with assistance from your attorney, by analyzing the individuals currently classified as independent contractors and apply the ABC Test. If the individual fails one or more of the factors, reclassify them as an employee. Work with your attorney to assist with implementing the classification transition and help minimize potential legal exposure.

Insurance Policies generally do not cover independent contractors. It is best practice to request your independent contractors to provide you with a certificate of insurance and adding your organization as an additional insured. To help mitigate gaps in insurance coverage, your attorney should review your insurance policies.

Let us know if you have any questions or would like us to provide you with an insurance quote. We are here to help.

What NOT to Ask Employees or Applicants

written by Rebecca Gomez

The California Fair Employment and Housing Act (FEHA) prohibits employers from untitledmaking non-job related inquiries of employees or job applicants, either verbally or through use of an application form.

Employers are generally prohibited from making the following types inquiries:

  • mental or physical disability or medical condition
  • If the applicant has ever filed a workers’ compensation claim
  • Arrest (s) that didn’t lead to a conviction
  • Criminal conviction history [Unless a conditional offer has been made]
  • Minor marijuana offenses that are more than two years old
  • Salary history [including compensation and benefits]

While conducting background checks or running applicant credit checks is not prohibited, employers should use caution and ensure that they are not being used for discriminatory purposes and that are related to a business requirement.

In order to mitigate employment related claims, discuss hiring practices with your HR administrator and employment attorney. In California, Employment Liability Insurance (EPLI) policies exclude wage and hours claims; however, some carriers do provide a defense sublimit coverage.

Let us know if you have any questions regarding EPLI or would like us to provide a quote. We are here to help.

Cyber Risk Management: Train your Employees!!

Picture1written by Rebecca Gomez

Studies have shown that most breaches affecting organizations are not committed by nefarious unknown forces, but from their current or former employees. Experts in the cyber intelligence community found that 60 percent of all breaches affecting organizations have been carried out by individuals within their organization, who intentionally or unintentionally, take sensitive information when they depart. From the 60 percent of breaches committed from within the organization, 44.5 percent were done maliciously by employees and 15.5 percent were done inadvertently— accidentally opening malware, sending sensitive information to incorrect e-mail addresses, or losing a company laptop. It is imperative that your organization be proactive to prevent breaches.

Employees have more access to information than in previous decades. The internet has transformed the internet boundaries allowing employees to bring company data outside of the organization. It is important that any one individual employed at your organizations, whether small or large, should not have full-unrestricted access to all sensitive company information.

Breaches can be prevented by creating, implementing, and educating employees on policies and procedures. Most employees may not be aware they are violating company policy if they are downloading information to take home. That is why it is important to train your employees on proper usage and protection of their workplace computer system and digital information. You should also set up procedures that block employees from being able to copy sensitive information.

Being proactive in protecting your organization is key. A cyber policy can further help protect your organization against the costly expenses associated with a data breach. Let us know if you have any questions regarding Cyber risk management or Cyber Liability Insurance. We are here to help.

Be Prepared for the Unexpected!!

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In creating an effective crisis management plan, your organization should explore various potential crises your organization can face, such as fire, weather-related perils, workplace violence, and cyber-attacks. After assessing the risks, create a crisis management plan to address those risks identified. This process should be assessed regularly to strengthen any weaknesses in the current plan or identify new risks.

Crisis Management Plans should include the following:

  • Procedures for the immediate response to a crisis, business operations plan, and a contingency plan for every potential crisis identified.
  • Updated inventory of your organization’s personal property and equipment to ease the insurance claims process
  • Identify Employees’ Roles
  • Identify Individuals who are designated to take charge during an emergency

Your crisis management plan should be able to answer, “What do we do [potential situation]?” Your crisis management plan should be reviewed by your attorney and regularly updated. The most effective strategy is to be prepared.

Many insurance carriers can provide additional information to assist with your crisis management plan. Let us know if you have any questions, we are here to help.

THIS IS INTENDED TO BE USED FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS LEGAL ADVICE

Are You Ready for the New Year?

Be Prepared or it Can Cost You! 

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As the New Year begins, it is important for every organization to review their risk management procedures by addressing any weaknesses to prevent potential accidents that lead to costly claims. One risk management tool to assist in mitigating the costs of claims arising out of your organization’s operations is to have adequate insurance coverage in place. Without proper insurance coverage, one lawsuit or a catastrophic loss can close down your operations.

While there are numerous insurance coverages available in the marketplace, the following are basic coverages that every organization should consider:

  • Commercial Property Insurance covers your building, personal property, and equipment in the event of a fire, theft, storm, and other perils outlined in the policy. Consider adding Business Interruption and Equipment breakdown coverages to the property policy. Make sure that you insure your buildings and personal property/equipment to reflect the replacement cost value [cost to restore or replace damaged property without deduction for depreciation]. The failure of adequately insuring your property (at least 80%) can result in a co- insurance penalty. Co-Insurance penalty reduces the amount of recovery that you may expect to recover if you under report the value of your Consider purchasing flood and earthquake insurance, since most property policies exclude damage or losses resulting from earthquake and flood.
  • General Liability Insurance provides coverage for liability claims from a third party (such as a client, vendor, visitor, etc.) for Bodily Injury and Property damage due to negligence. Most General Liability policies include liability coverage for Products/Completed Operations and Personal Injury (i.e. slander or libel).
  • Volunteer-Accident Insurance covers individuals who donates their work to your organization without pay. Coverage is triggered when those individuals are injured while performing duties related to the conduct of your business.
  • Workers’ Compensation covers the medical treatments, disability, and death benefits of employees who are injured or killed during the course of employment. In California, employers must carry worker’s compensation if they hire employees. It is imperative that every organization ensures their work environment is safe as claims history is one of the factors that determines
    Directors & Officers Liability and Employment Practice Liability Coverage: Coverage for Directors and Officers liability can be stand alone or coupled with other coverages such as Employment Practice Liability. It is important to read the policies terms, conditions, and exclusions of your policy and review the coverage with your attorney. It is also important to check if your policy’s defense limits is inside or outside the liability
    1. Directors & Officers Liability- the Board of Directors is ultimately responsible for the nonprofit organization. It is therefore important that they are informed of their legal liability, risk management program, and the organization’s insurance coverages. Directors and officers liability protects the individuals who serve on an organization’s board of directors against claims brought by employees, vendors, or other parties for alleged “wrongful acts” in the management of the organization. There is no standard coverage policy form. Therefore, it is important to read the terms, conditions, and exclusions of the policy. For example, the definition of “insured” differs among insurance
    2. Employment Practices Liability – Employment Practice Liability protects the organization against claims made by employees alleging discrimination, wrongful termination, harassment, and employment related issues. Most carriers do not insure Wage and Hour claims in California but some may offer a defense sublimit for wage and hour
  • Umbrella policy’s purpose is to protect your organization against a catastrophic liability loss. The Umbrella policy is a form of liability coverage protecting the policyholder for claims in excess of the limits of the primary General Liability, Automobile, or Workers’ Compensation. Umbrella policies may also include a few other liability coverages, such as: Professional Liability, Employee Benefits Liability and Abuse & Molestation.
  • Crime (Fidelity Bond) Insurance provides a source for recovery of funds embezzled by employees or volunteers. If your CPA or Bookkeeper is an independent contractor, make sure they provide you with proof of their insurance (General Liability, Professional Liability, Bond, and Workers compensation policies). If they do not carry their own insurance, discuss this exposure with your attorney, as most crime policies will not insure the acts of independent
  • Professional Liability Insurance coverage that indemnifies the insured for third-party liability claims due to negligence in the performance of professional services. Professionals include Doctors, Lawyers, Therapists, Social Workers, Engineers, etc. The Professional Liability coverage can be purchased as a separate policy or included under a General Liability policy form. However, most standalone professional liability policies are written on a claim made policy form. Therefore, be aware of the retroactive date listed on the policy.
  • Abuse and Molestation Coverage can be critical for social service organizations, especially those who work with children and vulnerable adults. There are no “standard” coverage form and before purchasing coverage make sure to read the terms, conditions, and exclusions carefully. Make sure to screen and supervise prospective employees and volunteers and review with your attorney to make sure your organization carries the adequate limits to protect your
  • Cyber Insurance is a special form of commercial insurance created to protect businesses against cyber (internet) risks, such as hackers and other breaches of computer system security. Also, check other insurance policies (such as General Liability and Directors & Officers) to determine if those policies carry cyber coverage, before purchasing a cyber policy. Claims resulting from cyber losses are on the rise and it is imperative to ensure that your organization has the proper controls in place to protect your data from a Most cyber policies are written on a claims-made basis, it is important to be aware of the retroactive date listed on the policy.
  • Automobile Liability covers organizations who use vehicles as part of their Company vehicles should be insured under a comprehensive commercial liability with limits high enough to protect the organization. If employees use personal vehicles for business, organizations should add hired and non-owned auto liability coverage to protect the business in the event the employee is in an accident.
Start the New Year off right by reviewing your risk management procedures. It is important that you review your current insurance coverages with your broker and attorney. Also, make sure your organization is in compliance by having your broker and attorney review your contracts.

Baker Romero offers an annual review of coverages as well as risk management and loss control services. Let us know if you have any questions regarding any of the coverages listed above or would like us to provide a quote. We are here to help and we wish you a happy and prosperous New Year.

**This article is intended only for informational purposes and not to be construed as legal advice.

Tips to Help Prevent Employee Theft

A recent report shows that the majority of employee thefts occur in small businesses burglar-157142_960_720with less than 150 employees. In most instances, trusted employees perpetuate employee theft.

The following are a few of the more common embezzlement myths, which fool administrators into complacency:

  • “Everyone who works here is a trusted employee.”
  • “Nonprofits rarely have to deal with embezzlement issues.”
  • “We are protected because the Audit will catch any embezzlement problems.”

Below are practical tips to help minimize employee theft within your organization:

  1. Establish best practices in the accounting department that include dual signature requirement or dual review of disbursements. There should be a separation in key business processes. Do not allow one person, including high-level employees, to have control over any function from start to finish.
  2. Provide training sessions for all employees to spot fraudulent activity and illustrate the damaging impact of fraud.
  3. Surprise audits are effective because fraudsters will not have time to destroy or misplace records.
  4. Thoroughly screen prospective employees (and volunteers) with a background check.
  5. If you contract with a bookkeeping service or an independent contractor, they should provide you with proof of their insurance including General Liability and Professional Liability.
  6. If fraud is suspected, immediately retain legal counsel to conduct an internal investigation. You should consider hiring a law firm with an expertise in embezzlement.
  7. Obtain the appropriate Crime Policy to protect your organization, as most liability and property policies will not cover employee theft. Make sure to carry high enough limits to protect your organizations’ crime exposure.

Crime policies (or Fidelity Bonds) can be purchased as a separate policy or included under the commercial business package. Crime policies require that you cooperate with the insurance company in the event of a loss. Proof of a crime usually requires a full investigation. A Crime Policy provides coverage for loss or damage of money, securities, or other property resulting directly from theft by an employee. Most policies exclude electronic data, unless covered by endorsement. Another option to consider is adding the Volunteer Endorsement in the event you hire volunteers to help in your accounting/bookkeeping department of if they handle funds.

According to the 2017 Hiscox Embezzlement Study, bookkeepers are the most common positions who commit theft followed by managers.  The most common embezzlement schemes include:

  1. Funds theft – employee takes cash or bank deposits, or employee transfers money into their own account.
  2. Check Fraud – Employee alters or forges check.
  3. Credit Card Fraud – Employee fraudulently uses employer credit card/
  4. Payroll Fraud – Employee uses payroll system to divert funds to themselves or family members.
  5. Vendor Fraud – Employee creates fictitious invoices.

A few warning signs of embezzlers include:

  1. Disgruntled employee.
  2. Diligent and ambitious employee who appears to be extremely involved in company matters.
  3. Employee with extravagant lifestyle.

Employers should not be complacent about instituting preventive measures. The reality is people steal from their employers work in an organization with an attitude of blind trust. Having strong internal controls and effective hiring practices will go a long way toward mitigating employee theft risks.

Call us if we can be of assistance or if you would like a quote for crime coverage.

**This is intended to be used for informational purposes only and should not be construed as legal advice. Consult with your attorney and CPA for advice on appropriate controls and policies. 

January Newsletter

Workers’ Compensation and the Experience Rating Modification (“X-Mod”)

Experience rating, authorized under the State Insurance Code, is a statistical procedure, which tailors premiums of qualifying employers to fit their organization’s loss (claims) experience.

How Does the System Work?

If your company’s premium is large enough to meet the system’s eligibility requirements, it is assigned an annual experience modification. Eighty percent of the state’s workers are subject to experience rating.

The experience modification (‘x-mod’) is generated by the workers’ compensation Insurance Rating Bureau of California, a nonprofit association of more than 400 workers compensation companies. The bureau is licensed by the Insurance Commission to collect data about injured workers’ claims. The Bureau uses this data to develop workers’ compensation rates and pricing regulations, which are recommended to the Insurance Commissioner for adoption.

An Important part of the Bureau’s duties is determining your organization’s qualifications for an experience modification (‘x-mod’).

Experience Rating Compares Organizations that Have Similar Risks (Exposures)

By comparing your organization’s payroll and claims history with other businesses assigned to the same industry classification, experience rating can determine if your organization’s claims are greater or less than what is expected from an organization in a similar industry.

The Bureau uses this statistical comparison to assign your organization its experience modification. The “x-mod” is a percentage factor, which is applied to your premium. It is used to either increase or decrease the amount of premium your organization pays to your insurance company.

How Workers’ Compensation is Priced

The premium for workers’ compensation insurance is based on a minimum rate that is established by the insurance commissioner.

The manual rates are based on a comparison of past payroll and losses of all of the businesses in a given classification. The rate projects the average cost of paying benefits for all businesses assigned to the classification, per $100 of payroll. If the rating system went no further than manual rating, the loss history or experience rating would not be recognized in determining the premium.

Experience rating, however, refines manual rates by comparing a company’s loss experience to other businesses assigned to the same classification and adjusts the company’s premiums to reflect its actual experience.

If you have any questions regarding workers’ compensation insurance, please let us know, we are here to help.

*This article is intended to be used for informational purposes only and not to be construed as legal advice.

December Newsletter

Back to Basics: Directors and Officers Liability and Employment Practice Liability Risk Management Tips.

Directors and Officers Liability Insurance, also known as D&O, covers individuals who serve on the boards of nonprofit organizations. Individuals who serve in such areas can be held legally liable for activities that arise from the activities of the organization or the financial claims which result from their decisions. Generally, board members are responsible for the governance of the organization and can be held personally liable for decisions that fail to meet their responsibilities. D&O can be considered one of the most important coverage a nonprofit carries because it insures current and past board members and is often a requirement for potential new board members.

There are no standard policy forms for D&O coverage. Each insurer writes their own form and can have substantial differences among insurance carriers (insurers). When looking at the policy, nonprofit organizations should read the form carefully so that the scope of insurance is understood. For example, most insurers use a claims-made trigger, which insures claims that are initiated during the policy period (date of claim determines coverage not date of act), while some insure claims arising out of activities during the policy period. A nonprofit should also examine the definitions of keywords that are listed in the policy to understand the scope of coverage. For example, “insured” and “insured individuals” usually includes the board members (past, present, and future),  but some carriers also include committee members, spouses, volunteers, and legal representatives.

Many insurance carriers that write D&O for nonprofits will also include Employment Practice Liability (EPLI). The most common types of Employment Practice Liability claims are the following: sexual harassment, racial and gender discrimination, defamation, failure to accommodate, and improper employee classification. Claims for improper employee classification has been on the rise. Some carriers will provide defense for improper employee classification but back pay or penalties owed to the employee are not covered by any D&O policy form (wage and hour issues).

Board Members and Nonprofits should consider the following to help protect themselves against Employment Practices Liability claims:

  • Make sure that Employee handbooks are in compliance with the law and that the company strictly adheres to the policies stated in the handbook.
  • Open communication with employees and make sure that all supervisors are adequately trained
  • Adopt anti-discrimination and anti-harassment policies and make sure that employees understand that such behavior will not be tolerated.
    • If there is a complaint, make sure the organization does a thorough investigation promptly and takes the appropriate action.
  • Be sure that employees are classified correctly
    • Exempt vs. Nonexempt
    • Independent contractors

This is not an exhaustive list of what board members and Nonprofit administrators should consider in regards to risk management. Consult with your HR representative and/or Employment attorney to check if handbooks are in compliance and if there are other risks that the organization needs to address.

If you have questions regarding Directors and Officers Liability or would like a quote, please contact us. We are here to help.

*This is article is for informational purposes and not to be construed as legal advice.


Tips to Reduce Holiday Party Liability for Employers

With the holidays approaching, attention is now turning to celebrating with family, friends, and coworkers at the company holiday party. Many organizations are in the process of planning the festivities and various liability issues need to be addressed when organizing a party. Incidents are more likely to occur if alcohol is involved. Employers should be concerned with the possible repercussions from intoxicated guests. For example, liability can incur from the following: drunk driving accidents, underage drinking, discrimination claims, premises to liability, workers’ compensation (for falls), and injury to third parties.

Below are some guidelines organizations should consider for planning and managing company holiday parties:

  1. If hiring a third party vendor, verify that they are licensed, bonded, and insured (regardless of function). Request a certificate of insurance and make sure that they have adequate coverage. Ask your attorney or broker what coverage that vendors and your organization need to be sure that there is adequate coverage.
  2. Contract- after hiring the third party vender, obtain a signed contract that will outline the functions and services the vendor will provide. Make sure that the contract is as specific as possible to the event, verify there is a hold-harmless clause (in the event of a vendor-related injury), and have your attorney review the contract before signing.
  3. Serving alcohol- If your organization plans on having alcohol served at your company party, be sure to hire a bartending service that insures its employees against liquor- related liabilities. The bartending-service staff will pose specific liability risks, so it is important that only the bartender service handle drinks and check IDs. Hosts should never pour or mix alcohol, this can increase personal liability risk. If there is a guest who appears to be intoxicated, be sure that they are cut off and that they do not drive themselves home. Hosts should consider appointing a trusted party attendee to help monitor the guest’s alcohol consumption as the host will have to pay attention to other activities.
  4. Be sure that walkways and paths are accessible and clear, to prevent slips, trips, and falls. Walkways should be lighted and signs should be posted to notify guests to watch their step.

These are just a few tips to consider to ensure that the party is safe and fun for the guests involved. Be sure to check with your attorney for any contracts or liability concerns. Also, check with your insurance broker for special events liability coverage. If you have any questions, or would like a special events quote, please contact us we are here to help.

We hope that everyone has a safe and happy holiday!

*This article is intended for informational purposes only and not to be construed as legal advice.

Back to Basics– Employment Practices Liability Wage and Hour

Wage-and-hour lawsuits are becoming a major concern for employers. Many factors have led to an increase in wage-and-hour claims including the complexity of federal and state laws as well as workers laid off due to the continued poor economy.

 

According to the Department of Labor there were 40,000 wage-and-hour complaints during 2010, a 15% increase from 2009. Generally speaking, claims fall into two major categories: misclassification of workers as exempt, and unpaid overtime. Additionally, there is the problem with employers misclassifying employees as independent contractors.

 

It is important for employers to be in full compliance with labor requirements and to invest in an effective and comprehensive H.R. risk management program. The complexity of regulations make it difficult for employers to be in full compliance, but it is imperative to focus on the proper classification of employees and observance of overtime regulation. Relying on insurance to help offset wage-and-hour legal costs may prove to be very costly.

* This is for educational purposes only.