Treating Employees as Independent Contractors Can Lead to Stop-Work Orders and Fines From the Department of Financial Services

Tuesday, June 26, 2012
By Christopher E. Brown, J.D. and George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law

Often a business obtains faulty legal advice that it can treat its employees as "independent contractors" and avoid a number of mandatory costs associated with hiring an actual employee.  These may include, for example, paying social security, Medicare and other mandatory assessments.  Additionally, the employer may believe that it can avoid expenses, such as workers' compensation insurance coverage, that are required by law.

Stop-Work Order Will Cease Business Activities Until Compliance is Established.

The Stop-Work Order is one tool that is used by the Florida Department of Financial Services (DFS) to halt an employer's business activities until it comes into compliance with the required insurance coverage mandated by Section 440.10, Florida Statutes.  The issuance of such an Order can be a death sentence to a small business due to the limitations and penalties that it places on a business owner.  To avoid this situation it is critical to understand the requirements of Chapter 440, Florida Statutes, and the penalties an employer can face when it fails to be compliant with Florida's workers' compensation laws.

Most Employees that Work in Medical Practice Setting Do Not Qualify as Independent Contractors.

All too often, an employer will classify its employees as independent contractors to avoid both taxes and the costs of insurance coverage.  However, the Florida Legislature has outlined very specific requirements in Section 440.02(15)(d)(1), Florida Statutes, that must be met in order for a worker to be classified as an independent contractor.  Most regular employees that work in an office setting or medical practice setting do not qualify as "independent contractors."  Typically, everyday employees such as medical assistants, receptionists, billing clerks, nurses, and clerical staff will not meet these requirements.

Complaint or Tip May Initiate a Department of Financial Services Investigation.

Typically, the DFS will receive a complaint or a tip, often from a former employee, but sometimes from a competitor.  An investigator from the DFS will then begin an investigation, often visiting the business suspected of the infraction.  A detailed records request or subpoena, requesting all financial documents (including bank statements, tax returns, cancelled checks, payrolls, ledgers, books, and other sensitive financial documents), will be served on the business, with only a short time to produce the requested information.

Stop-Work Order Can Have Devastating Impact on Business.

The DFS may issue a Stop-Work Order if egregious violations are found.  The Stop-Work Order closes down the business down immediately. The Order applies not only to the location where the Order was served, but to all other locations where the employer may be out of compliance.  The employer's failure to abide by this Order can result in a penalty of $1,000 per day for each day that the employer continues to conduct business operations. The issuance of a Stop-Work Order can lead to tens of thousands of dollars in lost income and can force both large and small businesses to close their doors forever.

Stop-Work Order Will Not Be Lifted Until Compliance is Demonstrated and Penalties Have Been Paid.

The Stop-Work Order will not be lifted until your business is in compliance and all penalties are paid.  The DFS will assess a penalty equal to 1.5 times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during the periods for which it failed to secure payment of workers' compensation.  These penalties can be extensive and costly.

Tips to Avoid Stop-Work Orders, Fines and Penalties Assessed by the DFS.

Physicians and other health professionals, especially those just starting a new business, should avoid taking shortcuts and attempting to avoid paying taxes and assessments that the law requires.

1. Do not attempt to scrimp on taxes and expenses by treating regular employees, even part-time or hourly employees, as "independent contractors."

2. Officers and shareholders (owners) of a business may be entitled to an exemption so that they do not count as an employee of the business for the purposes of reaching the statutory minimum number (four employees);  however, they must apply for this in advance of any investigation or complaint. Do so now!


3. Use a reliable commercial payroll service to make all mandatory deductions, withholdings, tax payments and assessments.


4. If you have employees, purchase workers compensation insurance, regardless of the number of employees.  This will help protect you from liability for employee injuries on the job.


5. Consult with an experienced attorney when setting up your business or medical practice.


6. If you receive a notice that you are being investigated, a documents request, or a Stop-Work Order, consult an attorney experienced in such matters immediately.

Contact Health Law Attorneys Experienced with Stop-Work Orders.

If you are confronted with a Stop-Work Order it is imperative to immediately contact an attorney experienced in these matters.  The Health Law Firm represents physicians, medical practices, and other health providers who have been issued a Stop-Work Order. The Health Law Firm's attorneys can assist you in producing the necessary documents and mitigating the penalties that may be assessed.

To contact The Health Law Firm, please call (407) 331-6620 or (850) 439-1001 and visit our website at www.TheHealthLawFirm.com.

About the Author:  George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law.  He is the President and Managing Partner of The Health Law Firm, which has a national practice.  Its main office is in the Orlando, Florida, area.  www.TheHealthLawFirm.com  The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone:  (407) 331-6620.

Tag words: Department of Financial Services, DFS, Stop-Work Order, independent contractor, workers' compensation insurance, medical practice, employee or independent contractor, administrative hearing, corporate structure, business structure, business attorney

6/26/2012

Like this blog? Add your public comments:

Items in bold indicate required information.