Tennessee Governor Bill Haslam has signed into law a bill allowing the Tennessee Department of Labor and Workforce Development to impose penalties on construction companies that avoid paying workers’ compensation premiums by misclassifying workers. The bill’s sponsor, State Senator Bill Ketron, said the Department needed specific authority to address workers’ compensation premium fraud and avoidance. The measure (S.B. 833), signed on May 16, 2013, adds the following provision (Section 50-6-411) to state law, effective July 1, 2013:

It is a violation of this section if at any time a construction services provider… misclassifies employees to avoid proper classification for premium calculations by concealing any information pertinent to the computation and application of an experience rating modification factor or by materially understating or concealing:

  1. The amount of the construction services provider’s payroll;
  2. The number of the construction services provider’s employees; or
  3. Any of the construction services provider’s employee’s duties.

“Construction services provider” is defined as any person or entity engaged in the construction industry.

For a violation of the new law, a construction services provider may be fined an amount up to $1,000 or 1.5 times the average yearly workers’ compensation premium for the provider, whichever is greater. 

General Characteristics of Employees and Independent Contractors

The Tennessee Employee Misclassification Advisory Task Force, created in 2011, has listed general characteristics of an independent contractor and an employee. They include: 

Independent Contractor

  • Free from direction and control
  • Has necessary skills and training to complete job 
  • Has a business location 
  • Performs services for multiple customers 
  • Sets own hours 
  • Determines own price for contracted services 
  • Not eligible for employee benefits 
  • Provides equipment and tools used to complete job 
  • Supplies materials needed to do job 
  • Personally liable for errors and/or accidents 
  • Files self-employment taxes 
  • Has right to hire and fire workers 
  • Must legally complete each contract 

Employee

  • Means and manner of work are (or can be) controlled by employer
  • May be trained by employer to perform job
  • May work at employer’s business location
  • Works for one employer, may serve that employer’s customers
  • Hours set by employer 
  • Accepts wage, salary, or commission determined by the employer
  • Employer may provide and control equipment and tools
  • Employer may purchase materials and supplies
  • Employer liable for employee errors and/or accidents
  • Is hired and can be fired by employer
  • May quit working for an employer at any time
  • Employer may require specific attire to be worn while at work such as a uniform or shirts with company logo