The Definition of ‘Employee’ Was Changed by the New Economy; Here’s How That Impacts Insurance

By: | December 20, 2018 • 4 min read
Jillian Slyfield serves as Digital Economy Practice Leader at Aon. In this role, Slyfield addresses digital disruption of traditional industries and the on-demand economy. Her focus areas are Alternative Mobility, The Future of Work and New Economy Digital Risk. She can be reached at [email protected]

The New Economy has evolved workplace expectations and flexibility with a rejuvenated focus on how technological advancements allow work to be performed in nontraditional environments. According to a recent survey by Bankrate, nearly four in 10 Americans work a second job, and the U.S. Department of Labor reports that more than 10 percent of workers build their careers entirely as independent contractors. Far from being an anomaly, participating in work as an independent contractor is swiftly becoming the norm.

The challenge, however, is that how we define an independent contractor — and consequently an employee — is now in question. In April 2018, the California Superior Court ruled in Dynamex to end the use of a long-practiced determination for independent contractor status and instead use the ABC Test.

This test differs from the traditional Borello test and appears to make many previously-defined independent contractors as employees. Although confined to California (and currently still being litigated), Dynamex has had a ripple effect across the nation, creating upset for many organizations, specifically in regard to the B portion of the test.

For example, take Isha — a highly specialized software engineer who has been hired as an independent contractor to perform a specific task at a software company. Given the demands of this role, she is not taking other jobs at this time. Additionally, look at Doug — a rideshare driver working weekday mornings from 4am-10am, picking up airport commuters. Midday, he runs his own mobile phone repair business, which is his primary income.

Wage & Hour coverage, still only an approximately seven year old product, generally covers settlements and judgments resulting from wage and hour claims.  If the new definition of independent contractor holds in California, or expands to other states, this coverage may become even more indispensable to businesses with an independent contractor workforce.

Does Isha qualify as an independent contractor under the ABC test definition? New Economy workers, such as rideshare drivers like Doug, are all wondering how the new standard will apply to them. There is no national consensus, and it is fair to say that workers will be classified differently on a state-by-state basis long into the future, causing confusion and uncertainty on both sides of the relationship.

Impact on Insurance

For the insurance community, this means that some workers’ compensation insurance carriers are concerned their insureds’ payroll will skyrocket if many current independent contractors must be accounted for as employees. Payroll skyrocketing means that large additional premium audits and LOCs will multiply. Far from a positive result, insurance companies are concerned the numbers will outpace the ability of the insured to pay the difference; this is a great concern of the insureds as well.

Some carriers are offering occupational accident programs newly designed to address the needs of an independent workforce and paid for via an app or through a usage-based policy. This redefined coverage is a safety net for workers injured on the job and can provide a true benefit to this growing population.

Wage & Hour coverage, still only an approximately seven year old product, generally covers settlements and judgments resulting from wage and hour claims. If the new definition of independent contractor holds in California, or expands to other states, this coverage may become even more indispensable to businesses with an independent contractor workforce.

Separate from EPL, Wage and Hour is quickly catching up to the changing workplace dynamic. Limits in excess of $200 million are now available and deductibles can be as low as $500,000, providing a viable alternative for entities who are concerned by this exposure.

The employee-employer relationship is the defacto framework and delivery mechanism for major medical, paid time off and short- and long-term disability programs. Therefore, when the definition of employee is in question, companies are forced to question this framework as well. Should Isha and Doug be granted benefits by their job providers? Should a solution be created independent of the employment relationship but that may include participation by platforms, government entities and insureds?

The industry will look to the federal and state legislators to adjust to the changing economy and, as a result, to update employment definitions, which may not reflect the new landscape.

In the meantime, brokers are working with insurance companies to craft solutions for workers’ compensation, occupational accident, wage and hour insurance as well as health and savings benefits in preparation for this surge of independent contractors. While there is great uncertainty surrounding the classification debate for workers like Isha and Doug, there is also great opportunity to provide meaningful value to both commercial enterprises and the end consumer. &

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]