Employers’ Obligations under the Workers’ Comp Act
Many employers in Virginia, particularly smaller ones, may not realize that they must carry workers’ compensation insurance in order to comply with the Virginia Workers’ Compensation Act. The Act requires, with few exceptions, that any business (person or company) that has three or more employees “regularly in service” within Virginia falls within the Act and must therefore carry workers’ compensation insurance.
The three employee cut-off appears straightforward. A great deal of litigation has resulted, however, from disagreements over this seemingly simple rule. First, a business can run afoul of the insurance requirement if it carries on its business with three or more regular workers whom it characterizes and pays as “independent contractors,” when in fact the true relationship is that of employer and employee. The Virginia Workers’ Compensation Commission looks at many of the same factors as the IRS in determining whether a worker is an employee or a contractor. The most important of those factors is that of control – to what extent does the employer control or dictate the means and methods, the finer details, by which the work is completed? If a worker is hired to perform a job and his only mandate is to accomplish a particular end goal (such as “build a shed”) and he is left to his own devices and discretion in how to accomplish that goal, then he can be characterized as an independent contractor and not an employee. While no single factor or set of factors is necessarily decisive, a worker that is paid hourly (as opposed to a fixed price), works a schedule dictated by the employer, is supplied with tools and/or materials by the employer, and is more closely supervised and directed is most likely an employee and not a contractor. Even if the worker agrees to be characterized and paid as a contractor, that fact alone does not make him one. If it walks like an employee and quacks like an employee, chances are that the Commission will find that the worker is an employee and not a contractor.
Second, many small businesses fluctuate around both sides of the three employee line throughout a given year or period. This fluctuation is especially true of seasonal businesses or ones that may scale up and down even more frequently. An employer could have fewer than three employees at some points but more than that number at other times. It is always the employer’s burden to prove that it does not fall under the Act if it claims that it regularly employs fewer than three employees. If a business normally carries on its work with three or more employees, or at least has consistent, recurring periods of three or more employees, then it must continue to carry workers’ compensation insurance even during the periods it does not employ three or more people. The determination, in other words, is not a “snapshot” of how many people are employed at the time of the accident – Virginia law looks at the overall operation of the business over a longer period. A business that employs a third employee only sporadically and unpredictably, however, is most likely not required to carry workers compensation insurance. Also note that a part-time employee is counted as a “full” employee toward the three employee threshold. The Act does not use “full time equivalents” or any similar fractional method of counting employees.
A final consideration for some small companies that do business as subcontractors, particularly in the construction industry, is whether those with whom they do business might require workers’ compensation insurance regardless of the legal thresholds and requirements. Many general contractors and larger subcontractors will require that their subs carry workers’ compensation insurance that covers all of the sub’s personnel. The reason for this requirement is that if the employee of an uninsured subcontractor is hurt on the job, that injured employee can file a workers’ compensation claim and the claim travels up through the contracting chain until it hits an insured company – and that insured company up the chain will not be happy about the claim or the sub’s lack of insurance.
If you are a business owner with questions about your obligations under the Virginia Workers’ Compensation Act, or if you are an employee who has been injured while on the job, MeyerGoergen can properly advise you regarding your rights and obligations.
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