“Need,” “want,” “have,” and “required by law” are all very different terms. Thankfully, one hundred and seventy eight (178) different governmental agencies are here to investigate, audit, fine and otherwise “help” small doctors’ offices comply with the law and determine which term applies to them – at least as recently identified by the State of North Carolina’s own online listing of agencies (www.nc.gov/agencies). Unfortunately, this “help” can come all too late in the form of an audit, fine, or court filing to enjoin a business’ operations once the business has failed to carry workers’ compensation insurance required by law. The good news is that some up-front preventative research and professional compliance assistance can seriously mitigate these large risks before a large fine or audit catches a small business by surprise.
Most small practices presume their insurance broker surely would have tried to sell them another policy and told them they needed workers’ compensation insurance if it was required by law, right? Unfortunately for many small businesses like chiropractors or medical doctors, the answer is “Maybe. Maybe not.” A litany of statutes, exceptions, regulations, exceptions to the exceptions, and vague rules and requirements can create a minefield of potential governmental audits, fines, and legal action to the small doctor just trying to help patients and take home a decent end of year income.
It’s hard enough to comply with minimum continuing educational requirements, business entity registration, board licensure fees, business insurance, office and equipment rent, malpractice insurance, and a host of other revenue leeching obligations. The desire to save money on initial legal fees or compliance consultant costs is certainly understandable for a small office, but it may be rolling the dice: operating without expert compliance assistance can enlarge small business compliance risks. Let’s start with the law on workers’ compensation in North Carolina.
Under the Workers’ Compensation Act, covered employment subject to mandatory insurance is generally defined as “all private employments in which three or more employees are regularly employed in the same business or establishment….” N.C. Gen. Stat. § 97-2(1). Most small business owners think about insurance, talk to an insurance agent, and become familiar with this general rule, but there are a litany of exceptions and circumstance specific rules that may or may not apply to each office.
This general three (3) employee minimum rule, for example, goes on to exclude “agriculture and domestic services” from this three (3) employee minimum. Id. The same sentence then states another exception to the agriculture and domestic exception that seemingly mandates coverage if “10 or more nonseasonal agricultural workers are regularly employed by the employer” and creates yet another exception from the agricultural services exception to include “an individual sawmill and logging operator with less than 10 employees, who saws and logs less than 60 days in any six consecutive months…” Id. One sentence alone among thousands of others in the law creates these rules, which are also subject to the issuance of administrative regulations with further rules and obligations. It’s not difficult to see why so many small businesses struggle to comply in good faith with this and most other well-intended laws with vast unintended consequences.
Hidden like a government silverback amidst this fog of regulatory legalese is yet another exception to the three (3) employee minimum rule: “or” employment “in which one or more employees are employed in activities which involve the use or presence of radiation…” Id. Reinforcement for this particular obligation is provided between the special rules and applications for employees of railroads, domestic servants, farm laborers, certain inmates, and prisoners: the Workers’ Compensation Act does not apply to businesses with less than “three employees in service” but again unequivocally provides an exception that states “this Article shall apply to all employers of one or more employees who are employed in activities which involve the use or presence of radiation.” N.C. Gen. Stat. §97-13(b). The NC Workers’ Compensation Act appears to cover any small business (and thus require workers’ compensation insurance) if any employee is involved in the use or presence of radiation, even if less than three (3) employees.
Even if a small doctor’s office doesn’t utilize radiation, it is surely safe from the coverage requirements if it has less than three (3) employees, right? Even if seemingly under the minimum employee rule, misclassified independent contractors could also inadvertently trigger coverage. First, it is true that a bona fide “independent contractor is not covered by the Worker’s Compensation Act and does not come within the jurisdiction of the Industrial Commission.” Hughart v. Dasco Transp., Inc., 167 N.C. App. 685, 689, 606 S.E.2d 379, 382 (2005). Many small businesses misunderstand the law surrounding independent contractors, however, and the Industrial Commission will step in to “help” small businesses audit, evaluate, and apply the correct legal test.
Even if a worker agrees to be treated as an independent contractor and agrees to be paid by check, without payroll taxes, the issue of whether an individual is legally an independent contractor (not subject to the Workers’ Compensation Act) or an employee (subject to the Workers’ Compensation Act and three (3) employee minimum rule) is a purely legal test based on the facts and law that is not entirely controlled by choice of the parties. This is an eight (8) factor test based upon the “degree of control” exercised by the small office over the individual, and an independent contractor relationship exists if:
[t]he person employed (a) is engaged in an independent business, calling, or occupation; (b) is to have the independent use of his special skill, knowledge, or training in the execution of the work; (c) is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis; (d) is not subject to discharge because he adopts one method of doing the work rather than another; (e) is not in the regular employ of the other contracting party; (f) is free to use such assistants as he may think proper; (g) has full control over such assistants; and (h) selects his own time.
Hughart v. Dasco Transp., Inc., 167 N.C. App. 685, 694, 606 S.E.2d 379, 385 (2005). Notably, the satisfaction of one or most of these factors does not mean the test is met – it depends entirely on the circumstances of each situation as determined by the reviewing government agency there to “help.” So, even if a small business utilizes a massage therapist as a “1099” contractor, or an “associate” doctor, or a family member that “volunteers” from time to time to help at the front desk, these individuals could all legally constitute employees that are covered by the Workers’ Compensation Act and require insurance coverage.
Once small businesses understand the complexity of these issues and risks, offices can take steps to mitigate their risk. First: be informed. Professional organization membership is an outstanding resource and first step to gain networking contacts, industry resources, and compliance pointers and tips, and if you are reading this article you’ve likely already taken that step. Second: get a good insurance broker; an experienced, reputable broker that can help you navigate the complexities of various types of insurance, coverage, and help you understand what is and isn’t required by the North Carolina laws governing insurance. A broker should be familiar with these rules and ask the right questions to ensure compliance. Ask them the tough questions and evaluate their answers. Third: establish a relationship with an attorney, legal expert, or compliance consultant to proactively review your polices and practices, put in place compliant office policies, and answer your questions regarding compliance. A good expert will not know everything, but they will listen to your concerns and research your issues to give professional compliance advice. This is not cheap. It is expensive. And it cannot in any manner guarantee compliance with the law. But some money spent up front can mitigate risk moving forward.
I hope this article is an informative first step to many small businesses that were unaware of just a few of the rules and exceptions regarding radiation, employees, and independent contractors. This article is not intended to constitute legal advice to any reader’s unique circumstances or situation.
