Although it may reduce certain expenses by not having building personnel on payroll, it opens up the association and the super/porter if they are paid on a 1099 basis, to exposure as follows:
Risk to the Association
- If the super or porter does not have General Liability Insurance, any damage or injury caused by them is the same as if the board hired an uninsured contractor. It will be difficult for the insurance company for the association to transfer the risk to the “independent contractor”. That means any and all claims will sit on the association’s loss history and reflect as injury or damage caused by a third party. Whenever a claim is subrogatable but isn’t able to be subrogated because the party did not maintain insurance, it is a knock against the association. It is a claim that could have been transferred but couldn’t be because it was an uninsured contractor.
- To avoid any issues, the association would still need to maintain Worker’s Compensation and will be paying a premium for it. This is necessary because in the event the independent contractor is injured while working, if they do not maintain Worker’s Compensation, not only could the association be required to pay any lost wages for the injured party, but they could be penalized by the compensation board for not maintaining Workers Compensation coverage. The way the law works is someone must maintain coverage. Just because someone is on a 1099 basis does not mean that they are not considered an employee by the Compensation Board. The Compensation Board has certain criteria that designate whether the association is the employer, such as whether they dictate the hours, what job duties are done, and whether this is the only location the independent contractor handles and if that criteria is met, that independent contractor could conceivably be considered an employee triggering benefits and penalties. The penalty for not maintaining Worker’s Compensation is $2,000 for every day ten days of not having coverage.
- Worker’s Compensation policies are based on payroll and audited each year. The auditing company will pick up that payments were made to the independent contractors and if the association cannot show that the independent contractors submitted proof that they maintain Worker’s Compensation coverage, the association is going to pick that up as payroll and pay a premium based upon that.
Risk to the Independent Contractor
- If they cause injury or damage and the association is named in a lawsuit, the insurance company for the association can try and subrogate against them. Being that there is no insurance maintained by the independent contract, the insurance company for the association can choose to subrogate against that independent contractor personally if they feel they have enough assets.
- If they cause injury or damage, the damaged party can sue them. Being they are not an employee of the association, they will not be covered by the lawsuit. Most General Liability policies include under The Who is an Insured section, any employee. In this case, they would not be considered an employee and would have to hire an attorney to defend any suits.
- If an independent contractor is injured while working, they can and probably will sue the association. The theory with Worker’s Compensation is an employee is eligible for benefits regardless of whether they were negligent and in return, they are giving up their right to sue their employer. Because they are not an employee of the association, they can sue them for injury. An injury to a contractor or a contractor’s employee are considered Labor Law claims. Labor Law claims in New York reach into the seven figures occasionally and that is one of the main reasons why the insurance marketplace is in such turmoil right now.
- Anytime there is a Labor Law claim on the association’s loss history, you can be assured that they will be non-renewed and will have a difficult time placing coverage elsewhere. That difficulty will continue for as long as that Labor Law claim is open. Many insureds have paid upwards of 500% higher for as many as five years because they have had open Labor Law claims on record.
If the association is going to pay building personnel via 1099, they should require that those independent contractors maintain both General Liability and Worker’s Compensation Insurance. As always, reach out to us with questions to make sure you’re properly protected.