Imagine this scenario… A Sole Proprietor contractor is doing some work remodeling an apartment and needs some help tearing out some walls. He only needs someone for one day, so he “hires” an acquaintance who is looking to make some extra money. However, the contractor decides to pay him under the table because he doesn’t want to incur the expense of worker’s compensation, the hassle of setting up a payroll, and the expense of paying payroll taxes.
The contractor figures he’ll take his chances because it’s only for a day and it’s unlikely that anything will go wrong. Besides, the worker seems like a real nice guy and he wouldn’t cause any trouble because the contractor is doing him a favor.
The reality is that the worker fell down a flight of stairs while carrying some debris. He broke his shoulder and dislocated a disc in his back. He racks up medical bills and won’t be able to work for months while he is recuperating. Looking to get compensated for his injuries he decided to contact a personal injury lawyer. They filed suit against the contractor, but the only policy that would respond to this type of claim is worker’s compensation insurance which the contractor did not have, and General Liability insurance excludes injuries to employees. The lawyer tightens the screws by contacting the Worker’s Compensation Board, the state tax department, the IRS, and OSHA.
Now the contractor is personally facing a large lawsuit and the nightmare of dealing with each of the agencies involved, plus the fines that are sure to be imposed for non-compliance with the law. All of his personal assets are at risk because there is no insurance to protect him.
The moral to this story is that life and people are unpredictable. We live in a society where people are trained to sue when something goes wrong because they see the possibility of a large settlement. When you “hire” anyone, make sure that consults with your advisors to make sure you are in compliance with the law and that you protect yourself with the proper insurance.
Bill Burke is a Multiple Line General Agent with Farm Family Insurance Co. and is a Certified Insurance Counselor located in Glenmont, NY. You can contact him at BillBurke@Farm-Family.com or (518) 431-5555.
This blog is for informational purposes only and does not offer insurance or legal advice. It is recommended that you contact a competent licensed insurance professional to review your specific insurance program.