Work at Home

Worker's Comp For Beginners Cliff Ennico www.creators.com "I started out in business several years ago as a solo contractor. About three years ago, I hired my first employee, and today I have about five full-time and part-time people working for me. I have a terrific accountant, and have always paid my income and payroll taxes on time. About six months ago I had to lay off a guy because new construction was slowing down in our area. He filed for unemployment benefits, and now I'm getting nasty letters from my state Labor Department saying they need to audit my books. What's going on here, and why didn't anyone tell me about this?" Sad to say, your predicament is a fairly common one for small business owners - especially those who, like you, started out as "solos" and then started hiring employees. Life becomes much more complicated when you hire your first employee. Most people know that they have to pay employment or payroll taxes on their employees' wages, and hire a payroll service to do all of the necessary paperwork. But there's another set of laws in just about every state you have to be aware of when you hire employees. Unfortunately, accountants, lawyers and payroll services sometimes forget to tell you about them. These laws go under the general heading of "workers' compensation" or "workers' comp", and they can really trip you up if you're not careful. There are three types of workers' comp program: Workers' Compensation Insurance . Traditional "workers' comp" is a form of insurance that provides compensation for employees who are injured in the course of employment. The idea is that by providing coverage for workers from state funds, the workers will be less likely to sue their employers for damages resulting from on-the-job injuries (yeah, right). Every state law is different, but virtually all workers' comp programs require you, as an employer, to purchase insurance in minimum amounts for each one of your employees, and keep the insurance policies up to date. Most employers maintain only the minimum amount of coverage required by law, as they figure they "will be sued anyway" if an employee is injured on the job and that there is no real benefit to paying more than the minimum premium each year. In any event, workers' comp is no substitute for a general liability policy covering you against lawsuits resulting from injuries and accidents to ANYONE that happen on your premises. Just about all states have a workers' comp program of some sort. To find out your state's requirements, go to www.workerscompensation.com and click on your state when the map of the United States pops up. Unemployment Insurance . In addition to workers' comp, many states require employers to pay into an "unemployment compensation" system that provides benefits to workers who are "between jobs". Once you hire your first employee, you are required to make periodic payments into the system. If you fail to make these payments, and a laid-off worker files for benefits, your state Department of Labor will view you as a "scofflaw" and will take legal and administrative action to bring your business into compliance. To find out about your state's unemployment comp program, search on the Web for "[your state] unemployment compensation", or visit your state Department of Labor's Website. Temporary Disability Insurance (TDI) . Lastly, in Puerto Rico and five states (California, Hawaii, New Jersey, New York, and Rhode Island), employers and employees (through payroll deductions) are required to contribute to a "disability fund" to provide temporary benefits to persons who are unable to work due to employment-related injuries, or who become disabled while they are "between jobs". Some of these states allow employers to provide their own disability coverage for employees in lieu of contributing to the state program, but other don't. A useful summary of state TDI laws can be found on the Web at workforcesecurity.doleta.gov/unemploy/pdf/temporary.pdf . Generally, if you are self-employed and have no employees, you are not required to provide worker's comp coverage for yourself, or pay into state Unemployment Insurance or TDI programs. You are also not required to provide coverage for "independent contractors" who work for you. However, if the IRS or some other government agency reclassifies your "independent contract" workers as employees, you will be getting a nasty letter from your state Labor Department demanding you make contributions retroactive to the date you first began working with them. Some payroll services will help you comply with your obligations under state workers' comp, Unemployment Compensation and TDI laws. Sadly, however, most don't - they deal only with employment taxes. The only sure way to make sure you don't make any mistakes here is to retain the services of a good "labor and employment" attorney in your area BEFORE you hire your first employee or "independent contractor". Cliff Ennico ( cennico@legalcareer.com is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.