New definition of "employee" promises to result in new workers' compensation risk and cost to Maine employers

by Allan Muir

Last year, the 125th Maine Legislature enacted several amendments to the Maine Workers’ Compensation Act.  Perhaps the most important was L.D. 1314, “An Act to Standardize the Definition of Independent Contractor.’’  This new law will take effect on December 31, 2012 and will almost certainly catch more than a few Maine employers by surprise. 

The reason for this is that the law creates a presumption of employee status for any person who performs a service for a Maine employer for pay, unless the employer can satisfy a very strict multi-part test that defines “independent contractor.”  Although the test also applies for purposes of unemployment insurance, it will have a far greater effect in the area of workers’ compensation. 

By making it more likely that a service provider will be treated as an employee, and therefore entitled to workers’ compensation benefits in the event of injury, the new law also makes it inevitable that workers' compensation insurers will charge premium for that increased risk.  In other words, insurers will presume that some or all of your independent contractors are your employees and they will charge premium accordingly without waiting for an injury to occur.  Employers need to understand what this means and what steps they can take in order to avoid unpleasant surprises when they undergo their first premium audit of the new year.     

It is not difficult to predict how insurers will charge premium based on a similar provision enacted in 2010 that applied to construction contractors.  Beginning in 2010, insurers informed construction risks that they would charge premium for subcontractors unless the employer could demonstrate that the subcontractor carried its own policy of workers’ compensation insurance or obtained from the Workers’ Compensation Board an approved “Application for Predetermination of Independent Contractor Status to Establish a Rebuttable Presumption.”

Maine employers should expect insurers to apply these same rules under the new law.  This means that, if you have a person performing work for you and you believe the person to be an independent contractor under the new definition, you should ensure that the independent contractor has a policy of workers’ compensation insurance (usually not a problem if you are contracting with a business entity with employees) or a Board approved predetermination.  Your contractor is responsible for submitting the application to the Board.  The application is “portable” meaning it can be relied upon by others who contract for the person’s services.  The forms are good for one year and so must periodically be renewed.

The Board has updated the form to apply to all employers and to include the new test for defining independent contractor.  The new form is number WCB-266 and it is available on the Board’s website.  It contains the new definition of independent contractor including the 5 new tests that must be met for a person to be treated as an independent contractor as well as the 7 additional tests, 3 of which must be satisfied, in order to rebut the presumption of employee status. 

Going forward, if you fail to obtain an approved Board form or proof of insurance, your insurer is likely to treat payments to your independent contractors as wages and will accordingly charge premium on those payments based on the work the person performs.  We strongly encourage Maine employers to contact their agents or this office in order to fully understand and prepare for this new risk. 

Please contact Allan Muir at 207-791-1365 or with any questions about the new independent contractor law.