April 2018 - Workers’ Compensation Insurance
Written by by Erin Prutow, Esq.
Wednesday, 28 March 2018 17:54
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Misunderstandings about this insurance are very common & very costly.

by Erin Prutow, Esq.

You’re a trainer, barn owner, barn manager –why is it important to carry workers’ compensation insurance?

A busy hunter-jumper trainer needs help with stalls while away at horse shows and hires a stall cleaner to work at the farm every morning for the remainder of the show circuit. The diligent worker gets kicked by a stall-sour mare while mucking out stalls; as the business owner are you responsible for paying medical costs relating to this worker’s injury?

As with many areas in law, the answer is—it depends. In California, employers must provide workers’ compensation coverage for their employees. However, workers’ compensation benefits are not required for independent contractors. While equestrian professionals may claim that they do not need to provide workers’ compensation insurance because their workers are all independent contractors, this classification is determined by multiple factors, not necessarily how you, as the employer, think of them. Consequently, many equine professionals are assuming great risk of potential legal liability, criminal penalties, and expensive back taxes by misclassifying their employees as independent contractors.

So what is Workers’ Compensation Insurance?

Workers compensation insurance covers a worker who suffers a job-related injury or illness and is paid for by their employer. Workers compensation benefits can assist in covering medical expenses, rehabilitation, and provide for lost wages. To receive workers’ compensation benefits, the worker is not required to prove their employer is at fault; this speeds up the process and allows the worker to receive benefits for their injuries sooner. On balance, when claiming workers’ compensation benefits, the worker loses their right to sue their employer for negligence and will not collect any damages for pain and suffering like they might in a personal injury suit.1

Horse-related injuries are part and parcel of working with and around horses. Since the equine profession is an industry that consistently relies on specialized manual labor, the risk of injury cannot necessarily be mitigated by technology and automation as in many other fields of work. Surgery and rehabilitation for a broken limb from being thrown off a horse or to alleviate the pain of a slipped disc from years spent in the irons can be extremely expensive.

In California, insurance providers have reacted to the high costs of claims by substantially increasing their premium reserves.2 Nationally, California’s costs are substantially higher than in any other state, denoting an increase in workers’ compensation claims and higher costs set aside for each individual claim. For an equine professional in California, this data signals the importance of insurance to mitigate these rising costs.
Workers’ compensation insurance premium rates depend on the industry classification, your experience modification (your business’ history of work-related injuries), payroll and any other underwriting adjustments.3 Generally, equine professionals should expect to pay anywhere from a few dollars up to thirty dollars towards workers’ compensation insurance premiums for every $100 paid in wages for each employees.4 An employer can choose their preferred insurance broker for their workers’ compensation insurance or obtain it through the State Compensation Insurance Fund.5

Although the cost of carrying workers’ compensation insurance can deter many equine professionals from obtaining it for their employees, failing to carry it exposes an employer to major liabilities. In California, the Employment Development Department (“EED”) determines whether a worker is an employee or an independent contractor.6 Notably, the EED has a strong preference for finding workers to be employees. If you misclassify a worker and you do not have workers’ compensation insurance, you could be subject to criminal and civil penalties. Failing to have workers’ compensation insurance is a misdemeanor punishable by either a fine of over $10,000 or imprisonment for up to one year.7 If an injured worker brings a claim before the Workers’ Compensation Appeals Board, an uninsured employer is subject to a heavy fine for each uninsured employee on payroll at the time of the claim with a maximum of $100,000.8 The IRS can also audit equine businesses for improper income tax withholdings and request employment taxes for each misclassified employee.9

How does the law determine if your workers are true employees or independent contractors?

An independent contractor classification centers around a “right to control” the means and timetable to complete hired work. Independent contractors are hired to perform services on their own schedule without any expectation of continued indefinite employment.10 Independent contractors provide their own equipment and work without supervision.11 Conversely, a worker would be more likely to be viewed as an employee if their schedule is determined by their employer, if they receive training, if the equipment necessary for the job is provided, and if the worker receives regular payroll.12

In the horse industry, think of your farrier as an example of an independent contractor. He comes to shoe your horse for a predetermined rate, using his own truck and equipment on his own schedule. Braiders, nightwatch, haulers, massage therapists, and veterinarians are other examples of equine independent contractors. Alternatively, a barn manager who receives regular pay for preset work hours, uses the farm equipment, and works under the supervision of the barn owner or trainer would be viewed as an employee.

To mitigate the risk of a misclassification, make sure that your independent contractors have their own insurance and that you are providing insurance for all of your employees. Always provide employees access to their workers’ compensation insurance information.13 Review the appropriate IRS and California guidelines. The EDD has a questionnaire on their website to assist employers in correctly classifying their workers.14 Finally, if you are still in doubt about the status of your worker, consult a local tax attorney or accountant.

Author Erin Prutow, Esq. is a California attorney practicing equine and entertainment law. She graduated summa cum laude from Oklahoma State University where she was captain of the nationally ranked equestrian team. She received her juris doctorate from Emory University School of Law before relocating to Southern California. A Pennsylvania native, she has been training and showing in the hunters and jumpers her entire life, most recently capturing the SFHJA 18 & Over Medal Finals Championship at the Camelot Classic in Santa Barbara.
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1 Cal Lab. Code § 3700
2 https://www.wcirb.com/news/wcirb-releases-report-emerging-trends-california-workers’-compensation-alae-costs
3 Id.
4 https://www.insureon.com/insureonu/costs/workers-compensation
5 https://www.dir.ca.gov/dwc/faqs.html
6 http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf
7 Cal Lab. Code § 3700.5 (https://www.dir.ca.gov/dwc/faqs.html)
8 Cal Lab. Code § 3722 (http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=3722.)
9 Int. Rev. Code § 3509
10 https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
11 Id.
12 Id.
13 https://www.dir.ca.gov/dwc/faqs.html
14 http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf