Connections

Independent Contractors: How Your Policyholder Can Avoid Liability

Many employers use independent contractors to reduce the cost of their workers’ compensation insurance. However, simply calling a worker an independent contractor does not make them so and mistakes identifying them as such can be expensive. If your client hires a contractor without an effective Independent Contractor Exemption Certificate (ICEC), their wages will be added to their policy at audit and premium charged in full.  Also, all losses resulting from the injury of these workers will count towards adverse experience on their work comp policy and increase their work comp policy at renewal. The unexpected expense can be tragic.

You can help your policyholder avoid unplanned liability by advising them to carefully handle how they hire and supervise independent contractors.

To qualify as an independent contractor in Montana, a worker must be:

  • Free from control or direction.
  • Engaged in their own independently established business, occupation, trade or profession.
  • Hold an effective ICEC.

The Montana Supreme Court has stated the following four factors are indicators of control in a working relationship:

  1. Evidence of control, including the right to control their daily activities.
  2. Furnishing of the worker tools and equipment for the work.
  3. Paying for the work in ways that show an employer/employee relationship.
  4. Have the right to fire at will (without contractual liability).

Independent Contractor Exemptions

Owners of a business that consider themselves independent contractors MUST either have workers’ compensation coverage on themselves or obtain an Independent Contractor Exemption Certificate. When approved, the ICEC exempts an individual from both workers’ compensation and unemployment insurance. A sole proprietor, working member of a partnership, member managed limited liability company or manager managed limited liability company (construction industry) may apply for the exemption.

For more information about Independent Contractors and the ICEC go to the Montana Department of Labor website here.

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