Following is a memo sent by our accountant, Carleen Layne. Many of you have been following the independent contracter versus employee issue closely…..
Independent Contractor versus Employee followup:
I have again met with Labor and Industry representatives and have a proposed exemption for nonprofits from workers compensation as shown below—the wording right now says that it’s for performing arts and humanities only, but I’ve had an email exchange with the attorney who agrees this should be changed to cover all arts organizations. A further agreed to amendment is to change the dollar amount of $600 to link it to the minimum wage, so it will go up as that does. Right now it appears that amount would be $675.
I was more hopeful before I got more of the facts about the issue, which as it turns out is a very complex issue and not only relates to state, but federal requirements, as well. I saw recently on the IRS website that this is going to be a hot audit topic for them as well.
I understand that this may not look like a lot, but I believe it’s the maximum we can hope for at this time. It covers only the smallest payments and anyone who makes over this amount of money in a year would still either have to jump through the Independent Contractor hoops or be an employee and fully covered. At least they won’t be making less than it costs to apply for the exemption. Every individual you pay is either a vendor, e.g. the people you buy supplies from, an employee or an independent contractor. In Montana you must go through the exemption process to be determined to be an independent contractor, otherwise you’re an employee. So we’ve been caught in an unintentional net with the law change in Montana.
Even with this exemption to not have to cover people who make less than the specified amount per year, you still have to deal with the liability issue. I don’t know how insurance companies would respond to this. The exemption that Labor and Industry prepared is as far as the state is willing/able to go to fix this matter. Their big deal is liability, which is why they changed the law in the first place–what happens if someone gets hurt? Who pays for it?
To make major changes in the law would be a big fight over a long haul at the federal level too. I believe it would have to involve the whole nonprofit sector and be a big orchestrated magilla. Right now I think nonprofits in many state are acting like the people they pay are independent contractors without any evidence that is in fact the case. If the IRS does make this a big deal, the whole national sector could find it self in the same position we’re in today in Montana. That might be what it takes to make major change. Sorry–I wish I were more optimistic.
Please let me know ASAP if this would provide any relief to your case and if it will, I’ll hook up with Labor and Industry to introduce legislation this session. We believe we have a legislator who will sponsor this legislation.
39-71-401. Employments covered and employments exempted. (1) Except as provided in subsection (2), the Workers’ Compensation Act applies to all employers and to all employees. An employer who has any employee in service under any appointment or contract of hire, expressed or implied, oral or written, shall elect to be bound by the provisions of compensation plan No. 1, 2, or 3. Each employee whose employer is bound by the Workers’ Compensation Act is subject to and bound by the compensation plan that has been elected by the employer.
(2) Unless the employer elects coverage for these employments under this chapter and an insurer allows an election, the Workers’ Compensation Act does not apply to any of the following employments:
. . .
(z) employment of a person paid less than [$600] [in cash wages] a [calendar] year by a not-for-profit organization, if the not-for-profit organization is primarily engaged in the presentation of the performing arts or the humanities to the public.